CA Inter P1 · Chapter 3 · Question 12 of 16
Under AS 19, Leases, which of the following situations would normally lead to classification of a lease as a finance lease?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) The lease term covers the major part of the economic life of the asset even if title is not transferred
Explanation
AS 19 classifies a lease as a finance lease if it transfers substantially all the risks and rewards incident to ownership; one indicator is that the lease term is for the major part of the economic life of the asset. Payment frequency is irrelevant, and a cancellable lease or one where the lessor bears repairs and obsolescence risk points towards an operating lease.
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