The criteria for defining the lease as finance lease or operating lease As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a Finance Lease or an operating lease: Transfer of title: The asset is transferred to lessee at the end of the lease period concerned. Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value. Economic life: The economic life of the lease period is 75% or more than the useful life of the asset. Value recovery: Present value of lease payments is greater or equal to 90% of the fair value. If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease . If a lease does not fulfil any of the above four criteria, it would be considered as operating lease To indicate: The scenario where O would classify the lease as an operating or Finance Lease under US GAAP.

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Answer 1

Question

Chapter 15, Problem 15.11E

To determine

The criteria for defining the lease as finance lease or operating lease

As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a Finance Lease or an operating lease:

Transfer of title: The asset is transferred to lessee at the end of the lease period concerned.

Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.

Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.

Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease. If a lease does not fulfil any of the above four criteria, it would be considered as operating lease

To indicate: The scenario where O would classify the lease as an operating or Finance Lease under US GAAP.

2.

To determine

To indicate: The scenario where O would classify the lease as an operating or Finance lease under IFRS.

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Answer 2

Question

Chapter 15, Problem 15.11E

To determine

The criteria for defining the lease as finance lease or operating lease

As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a Finance Lease or an operating lease:

Transfer of title: The asset is transferred to lessee at the end of the lease period concerned.

Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.

Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.

Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease. If a lease does not fulfil any of the above four criteria, it would be considered as operating lease

To indicate: The scenario where O would classify the lease as an operating or Finance Lease under US GAAP.

2.

To determine

To indicate: The scenario where O would classify the lease as an operating or Finance lease under IFRS.

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Answer 3

Question

Chapter 15, Problem 15.11E

To determine

The criteria for defining the lease as finance lease or operating lease

As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a Finance Lease or an operating lease:

Transfer of title: The asset is transferred to lessee at the end of the lease period concerned.

Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.

Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.

Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease. If a lease does not fulfil any of the above four criteria, it would be considered as operating lease

To indicate: The scenario where O would classify the lease as an operating or Finance Lease under US GAAP.

2.

To determine

To indicate: The scenario where O would classify the lease as an operating or Finance lease under IFRS.

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Answer 4

Question

Chapter 15, Problem 15.11E

To determine

The criteria for defining the lease as finance lease or operating lease

As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a Finance Lease or an operating lease:

Transfer of title: The asset is transferred to lessee at the end of the lease period concerned.

Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.

Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.

Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease. If a lease does not fulfil any of the above four criteria, it would be considered as operating lease

To indicate: The scenario where O would classify the lease as an operating or Finance Lease under US GAAP.

2.

To determine

To indicate: The scenario where O would classify the lease as an operating or Finance lease under IFRS.

Expert Solution & Answer

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Answer 5

Chapter 15, Problem 15.11E

To determine

The criteria for defining the lease as finance lease or operating lease

As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a Finance Lease or an operating lease:

Transfer of title: The asset is transferred to lessee at the end of the lease period concerned.

Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.

Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.

Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease. If a lease does not fulfil any of the above four criteria, it would be considered as operating lease

To indicate: The scenario where O would classify the lease as an operating or Finance Lease under US GAAP.

2.

To determine

To indicate: The scenario where O would classify the lease as an operating or Finance lease under IFRS.

Answer 6

Chapter 15, Problem 15.11E

To determine

The criteria for defining the lease as finance lease or operating lease

As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a Finance Lease or an operating lease:

Transfer of title: The asset is transferred to lessee at the end of the lease period concerned.

Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.

Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.

Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease. If a lease does not fulfil any of the above four criteria, it would be considered as operating lease

To indicate: The scenario where O would classify the lease as an operating or Finance Lease under US GAAP.

Answer 7

Chapter 15, Problem 15.11E

To determine

The criteria for defining the lease as finance lease or operating lease

As per the notes issued by Financial Accounting Standard Board (FASB), the following are four criteria to determine is a lease is a Finance Lease or an operating lease:

Transfer of title: The asset is transferred to lessee at the end of the lease period concerned.

Purchase option: The purchase option is exercisable when the purchase price is sufficiently lower than expected fair value.

Economic life: The economic life of the lease period is 75% or more than the useful life of the asset.

Value recovery: Present value of lease payments is greater or equal to 90% of the fair value.

If a particular lease fulfils any one of the above four criteria, then it is considered as finance lease. If a lease does not fulfil any of the above four criteria, it would be considered as operating lease

To indicate: The scenario where O would classify the lease as an operating or Finance Lease under US GAAP.

Answer 8

2.

To determine

To indicate: The scenario where O would classify the lease as an operating or Finance lease under IFRS.

Answer 9

2.

To determine

To indicate: The scenario where O would classify the lease as an operating or Finance lease under IFRS.

Answer 10

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Answer 11

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Answer 12

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Answer 13

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To indicate: The scenario where O would classify the lease as an operating or Finance lease under IFRS.

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