For a right-of-use asset under a lease that qualifies as a finance lease because the lease contains a purchase option and the option is reasonably certain to be exercised, the amortization period used by the lessee must

A. The same period that was used by the lessor.

B. The economic life of the asset at the time the lease agreement took effect.

C. The term of the lease.

D. The term of the lease or the economic life of the asset, whichever is shorter.

Question

Erica Pearson

Biology

12 March, 08:56

For a right-of-use asset under a lease that qualifies as a finance lease because the lease contains a purchase option and the option is reasonably certain to be exercised, the amortization period used by the lessee must

A. The same period that was used by the lessor.

B. The economic life of the asset at the time the lease agreement took effect.

C. The term of the lease.

D. The term of the lease or the economic life of the asset, whichever is shorter.

+1

Answers (1)

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Summer Case · Answer 1

Option B, The economic life of the asset at the time the lease agreement took effect.

Explanation:

The lessee is given the option to acquire the asset at a cost lesser than the asset's cost at time of lease inception. From the inception the lease becomes exercisable.

Based on the fair value of the asset, the profit and loss should be recognized and in case if there is a loss, it should be amortized during the assets' usage period.

Hence, option B is correct