If companies want to disqualify a lease as a finance lease to the lessee, while having the same lease qualify as a finance (sales or financing) lease to the lessor, which of the following are true?

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Quizplus · Accepted Answer

Under IFRS guidelines, a lease can only be classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership to the lessee. If a company wants to disqualify a lease as a finance lease to the lessee, they must ensure that the lease does not meet these criteria. However, if the same lease qualifies as a finance (sales or financing) lease to the lessor, it must still meet the IFRS criteria for a finance lease. Therefore, the company must make information about the implicit rate (used by the lessor) unavailable to the lessee, and use the incremental borrowing rate by the lessee only when it is higher than the implicit interest rate of the lessor. This allows the company to disqualify the lease as a finance lease to the lessee while keeping it as a finance (sales or financing) lease to the lessor. The inclusion of a bargain purchase option or the specification of transfer of the property to the lessee are not necessarily required to disqualify a lease as a finance lease to the lessee while keeping it as a finance (sales or financing) lease to the lessor.

If Companies Want to Disqualify a Lease as a Finance