Lessor Accounting

Question 1

Do we decide at the start if the lease is a financing lease or operating lease?

Answer 1

Yes, we decide at the start if the lease is an operating or finance lease

Question 2

How do simply know if the lease is a finance lease?

Answer 2

When the lessee buys the asset and the majority of risk and rewards are with the lessee.

Question 3

Do we decide if the lease is an operating or finance lease if there is a modfication

Answer 3

Yes, unless if it relates to Useful economic life or residual value changes in which we do no use this as modification.

Question 4

There is a 5 years lease, leasee has the right to use asset for 3 years and lessor has a right to use asset for 2 years, what type of lease is this?

Answer 4

Finance lease because the lessee use the majority of the right to use asset so therefore it is a finance lease.