- 1 Marks
Question
Which of the following is TRUE of a finance lease?
A. The leased asset is reported in the statement of financial position of the lessor as a non-current asset
B. The lessor is responsible for insurance running and maintenance costs for the asset
C. The purchase cost of the leased asset is paid by the lessor
D. The lessee cannot claim the tax depreciation allowances
E. The lessee is the legal owner of the asset
Answer
C
Explanation:
The correct answer is “C. The purchase cost of the leased asset is paid by the lessor.” In a finance lease, the lessor retains ownership of the asset, but the lessee uses the asset and is responsible for payments over time. The purchase cost is initially borne by the lessor, and the lessee can account for the asset and the corresponding liability on its financial statements. This enables the lessee to claim depreciation and other tax benefits associated with the asset.
- Tags: Finance lease, Financial Reporting, Leasing
- Level: Level 1
- Series: NOV 2023
- Uploader: Theophilus