Snowy River Plc is a lessee to two lease arrangements.Lease A is non-cancellable,contains a bargain purchase option and the lease term is equal to 75% of the economic life of the asset.Lease B is non-cancellable,lease term is less than 60% of the economic life of the asset and the minimum lease payment represents 75% of the fair value of the leased asset. How should Snowy River Plc classify Lease A and Lease B respectively?

Question

Quizplus · Accepted Answer

Lease A should be classified as a finance lease because it contains a bargain purchase option and the lease term is equal to 75% of the economic life of the asset. On the other hand, Lease B is also a finance lease because the lease term is less than 60% of the economic life of the asset and the minimum lease payment represents 75% of the fair value of the leased asset. Therefore, the correct choice is D.

Snowy River Plc Is a Lessee to Two Lease Arrangements