Which statement is correct respecting the criteria for determining whether a lease is an operating or a finance lease?
A) Substantially all of the risks and rewards of ownership have been transferred from the lessee to the lessor.
B) There is a transfer of ownership to the lessee or a bargain purchase option (BPO) at the end of the lease.
C) The lease term is a minor part of the economic life of the asset.
D) The present value of the minimum lease payments comprises substantially 50% fair value of the leased asset.

Question

Quizplus · Accepted Answer

According to the criteria set out in IFRS 16, if there is a transfer of ownership to the lessee or a bargain purchase option (BPO) at the end of the lease, the lease is classified as a finance lease. This is one of the two main criteria (the other being the transfer of substantially all risks and rewards of ownership) that must be met in order for a lease to be classified as a finance lease rather than an operating lease. The other two criteria listed in the options, minor lease term and 50% of fair value of the asset, are not sufficient to determine whether a lease is an operating or a finance lease on their own.

Which Statement Is Correct Respecting the Criteria for Determining Whether