The criterion of 75% of economic life for classifying a lease as a capital lease is consistent with the basic premise that most of the risks and rewards of ownership occur during the first 75% of an asset's life.

Question

Quizplus · Accepted Answer

The statement accurately describes the reasoning behind the 75% criterion for classifying a lease as a capital lease. It assumes that during the first 75% of an asset's life, the lessee is typically exposed to most of the risks and rewards of ownership. Therefore, it is appropriate to classify the lease as a capital lease rather than an operating lease.

The Criterion of 75% of Economic Life for Classifying a Lease