Chapter 13 T or F

1- True, A lease to be classified as finance lease has to fulfill either of the 5 conditions.
Among which one condition is if a lease transfers ownership of the property to the lessee by
the end of the lease term, it will be classified as a finance lease.

2- True, Minimum lease payments include any amount to be paid for bargain purchase
options and guaranteed residual values, and excluding rental relating to costs to be met by
the lessor and any contingent rentals.

3- True, if it contains purchase options at the end then it should be classified as finance
lease.

4- True, In case of finance lease, lessee has the right to use the asset and hence lessee
depreciates the asset under lease and not the lessor.

5- True, Inception of lease is the date whichever is earlier of the following- date of lease
agreement or date of commitment by the parties for principal provisions of the lease.

6- False, Commencement of lease is the date from which the lessee is entitled to exercise
the right to use the leased asset.

7- True, finance lease recognises a net investment in the lease measured at the present
value of the lease payments and un guaranteed residual value, if any.

8- True, Interest rate implicit in the lease is the discount rate that, at the inception of the
lease, causes the aggregate present value of the minimum lease payments and the un-
guaranteed residual value to be equal to the sum of the fair value of the leased asset and
any initial direct costs of the lessor. It excludes most variable lease payments.

Part II

1- False, In this case n will be 9 years because the first lease payment is made at the
beginning of the year and this first payment will not be included in the calculation of present
value.

2- False, as already mentioned above, First payment of lease is not included in calculating
present value , thus we will not minus that amount from present value to calculate interest.
Correct formula is- present value of lease payment * 10%.