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    Question

    As per the Indian Accounting Standards, a company enters

    into a lease for a building for 9 years, and the building's useful life is 10 years. The contract transfers ownership of the building at the end of the lease term. Determine the nature of this lease and how it should be treated in the books of the lessee.
    A Operating lease, not recognised on balance sheet Correct Answer Incorrect Answer
    B Finance lease, off-balance sheet treatment Correct Answer Incorrect Answer
    C Operating lease, amortised over lease term Correct Answer Incorrect Answer
    D Finance lease, recognised as Right of Use asset and lease liability Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    As per Ind-AS 116, if the lease term covers a major part of the asset life and ownership transfers, it's classified as a finance lease, recorded on balance sheet.

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