From the lessee's point of view, a lease qualifies as a finance lease if it contains which one of the following?

Question

Quizplus · Accepted Answer

According to International Accounting Standards Board (IASB), a lease qualifies as a finance lease for the lessee when it transfers substantially all the risks and rewards incidental to ownership of an asset. This is demonstrated by one or more of the following conditions being met:
- The lease term is for a major part of the asset's economic life (condition A). 
- The lessee has an option to purchase the asset at a bargain price at the end of the lease term (condition C). 
- The present value of the minimum lease payments equals or exceeds substantially all of the fair value of the leased asset (condition D). 
If none of the above conditions are met, the lease is considered an operating lease for the lessee.  Option B (title remaining with lessor) is not a criteria for classification of a lease as finance or operating lease, but instead determines whether lessor is eligible for claiming depreciation on asset under finance lease.

From the Lessee's Point of View, a Lease Qualifies as a Finance