U.S.GAAP and IFRS provide criteria for distinguishing operating leases from capital leases.Which of the following is not true?
A)The criteria attempt to identify the entity, whether lessor or lessee, that enjoys the benefits and incurs the risk of the leased asset.
B)When the lessor enjoys the benefits and bears the risk, the lease is an operating lease.
C)When the lessee enjoys the benefits and bears the risk, the lease is an operating lease.
D)IFRS provides more general criteria for identifying the entity enjoying the rewards and incurring the risk.
E)Firms cannot currently apply the fair value option to capital leases

Question

Quizplus · Accepted Answer

Option C is not true because when the lessee enjoys the benefits and bears the risk, the lease is a capital lease, not an operating lease. Operating leases are those where the lessor retains the risks and benefits of the leased asset. A, B, and D are all true statements about the criteria for distinguishing operating leases from capital leases. Option E is not related to the question asked.

USGAAP and IFRS Provide Criteria for Distinguishing Operating Leases from Capital