Question

While only certain leases are currently accounted for as a sale or purchase, there is theoretical justification for considering all leases to be sales or purchases. The principal reason that supports this idea is that ________.

Answer 1

Answer:

A lease agreement is similar to a purchase or transfer of right to use an asset

Explanation:

Lease is a written or implied agreement between a lessor and a lessee in which the lessor transfers the right to use an asset to the lessee for a specified period of time.

There are two types . Finance and operating leasing.

In finance lease , the risk and reward is transferred to the lessee while the lessor , that is the owner retains the risks and rewards.

Looking at the definition of lease agreement , especially finance leasing , where the right to ownership is transferred to the lessee at the end of the lease agreement this looks lore like a sale and purchase transaction but for the initial lease agreement that binds the two parties.