U.S.GAAP and IFRS provide criteria for distinguishing operating leases from capital leases.Which of the following is true?
A)Firms cannot currently apply the fair value option to capital leases.
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 a capital lease.
D)IFRS provides more general criteria for identifying the entity enjoying the rewards and incurring the risk.
E)all of the above

Question

Quizplus · Accepted Answer

All the statements are true regarding the distinction between operating and capital leases under U.S. GAAP and IFRS. A) Firms indeed cannot apply the fair value option to capital leases under current accounting standards. B) An operating lease is characterized by the lessor retaining the benefits and risks of ownership. C) A capital lease (or finance lease under IFRS) is characterized by the lessee enjoying the benefits and bearing the risks of ownership. D) IFRS tends to provide more general criteria compared to U.S. GAAP for identifying which party enjoys the rewards and incurs the risks associated with the leased asset.

USGAAP and IFRS Provide Criteria for Distinguishing Operating Leases from Capital