a) (Lease A) Operating lease (Lease B) Capital lease b) (Lease A) Operating leas

Question

a) (Lease A) Operating lease      (Lease B) Capital lease
b) (Lease A) Operating lease      (Lease B) Operating lease
c) (Lease A) Capital lease      (Lease B) Capital lease
d) (Lease A) Capital lease      (Lease B) Operating lease

Lease A does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75% of the estimated economic life of the leased property. Lease B does not contain a bargain purchase option, but the lease term is equal to 90% of the estimated economic life of the leased property. How should the lessee classify these leases?

Explanation / Answer

As per Financial accounting standard Board a lease should be treated as capital lease if ceratins condition to be satisfied. And as per the information provided in the question following facts to be taken into consideration for our analysis ,

LEASE A:

LEASE B:

Now lets analyse ,

so the answer is a) (Lease A) Operating lease      (Lease B) Capital lease.

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