Finance lease
The lessor assesses the substance of the arrangement rather than merely its legal form. Indicators may include transfer of ownership, an option reasonably certain to be exercised, or a lease term for a major part of the asset’s economic life; no single indicator is always conclusive. A finance lessor recognises a receivable at the net investment in the lease. Lessees apply the IFRS 16 right-of-use model, subject to elections and exceptions, rather than classifying most leases this way.
Worked example
A lessor leases specialised equipment for almost all its economic life, and the facts indicate substantially all ownership risks and rewards transfer. The lessor classifies the arrangement as a finance lease and recognises its net investment.
Common mistake
Calling every lessee lease a finance lease or deciding classification solely by contract title.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Supporting | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |