In Order for a Lease to Be Considered a Finance

question 28

Multiple Choice

In order for a lease to be considered a finance (or capital) lease,international accounting standards require that a lease agreement

• A) transfers substantially all risks and rewards incident to ownership of an asset to the lessee.
• B) contains a provision requiring transfer of title to the lessee by the end of the lease term.
• C) provides that the term of the lease contract be longer than one year.
• D) provides for a bargain purchase option.

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Definitions:

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows, reflecting the time value of money and risk.

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return.

Accumulated

The total gathered or collected amount over a period of time, referring to various contexts such as finances, data, or materials.

Invested at

Refers to the specific time or price point at which investments are made into a financial instrument or asset.