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.

---

Definitions:

Current Liabilities

Short-term financial obligations due within one year or within the company's operating cycle.

Depreciation

Depreciation represents the gradual reduction of the recorded cost of a fixed asset over its useful life, reflecting the asset's wear and tear, deterioration, or obsolescence.

After-Tax Income

The amount of income left after all applicable taxes have been deducted, reflecting the net income available for spending, saving, or investment.

Net Income

The total earnings of a company after all expenses and taxes have been deducted from revenue.