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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Finance lease
Question in study test:
The building has a remaining useful life of 50 years. The lease term,
which would commence on 1 January 20X0, is for 30 years.
Answer:
The lease term is only for 60% (30 years/50 years) of the asset’s useful
life. This factor suggests that the lease is an operating lease.
One of the indicator of Finance lease is:
“The lease term is for the major part of the asset’s economic life.”
How to define major part? I was thinking 60% should be a major part.
It is a judgement call. In a similar standard in the US they indicate 75%, which I think is about right. So, you didn’t get it from me 🙂 , but you can use 75% – though obviously consider all the other factors re risk / reward transfer.