Question

Lease A does not contain a bargain purchase option, but the lease term is equal to 90% of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75% of the estimated economic life of the leased property. Based on this information alone, how should the lessee classify these leases

Answer 1

Answer: Lease A Capital lease

Lease B Capital lease

Explanation:

A Capital lease is known as a lease agreement in which the lessor ( someone giving out the property) agrees to transfer the ownership rights to the lessee ( someone acquiring or needing the services of the property). After completion of the agreed lease period.

In a capital lease, the lessor is usually mandated to transfer the ownership rights of the asset to the lessee upon the end of the agreed lease term between both parties.