Question

From the perspective of the lessee, leases may be classified as either: Multiple Choice Finance or operating. Finance or sales-type without selling profit. Sales-type or operating. Sales-type without selling profit or sales-type with selling profit.

Answer 1

Answer: Finance or operating

Explanation: A lease is defined as a contract that stipulates the terms under which one entity agrees to rent property owned by another entity.

The lessor is the owner of property that is leased while the lessee is the entity to whom a lease is given, or who takes an estate by lease. Now, from the perspective of the lessee, leases are classed as either financial or operating.

In a finance lease contract, which is treated like a loan, ownership of the property including risks and rewards related to the property is transferred to the lessee at the end of the lease term. However, an operating lease contract is treated like rent and is defined as one in which ownership of the property is retained during and after the lease term by the lessor. All the risks and returns remain with the lessor too.

Answer 2

Answer: Finance or operating

Explanation:

From the perspective of the person being leased to, a lease can either be an OPERATING lease or a FINANCE lease.

An Operating Lease is one where the lessee may use an asset but does not have ownership rights on it. They will pay a regular stipend though. It is essentially like renting a shop. You don't own it, but you can use it for a fee.

A Finance Lease on the other hand allows for the recording of the asset as if owned by the lessee even if it's just temporary. Certain criteria need to be met but once met, the records for the asset are recorded in the Lessee's books as their own asset meaning they account for things like depreciation.

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