FRS 17 Lease

@desigirl said:
Hi sir,

A premium is paid on a operating lease.How should I account for this.And for finance lease,if the question did not mention if the ownership of the asset is transferred, we should assume that ownership of asset is transfered or not transferred at the end of the lease term.

Thank you

substantially all of the risks and rewards of ownership of the asset is transferred to the lessee, who has the option of buying the asset(s) at the end of its life. The lease payment – with interest rate is able to assist you determin type of lease. Please take a second look at the standard or read the topic in the BPP text book.

the lessee has the option to purchase the asset at a price which is expected to be sufficiently lower than fair value at the date the option becomes exercisable that, at the inception of the lease, it is reasonably certain that the option will be exercised
the lease term is for the major part of the economic life of the asset, even if title is not transferred at the inception of the lease, the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and, the lessee has the ability to continue to lease for a secondary period at a rent that is substantially lower than market rent.

These are the three things used to clearly differentiate finance from operating lease.

Regards,