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Question
1. Five payments of $26,379.74 (a 9% implicit rate) due at the end each year.2. The fair value of the tractor is $100,000.
3. The lease is nonrenewable and the tractor reverts to Star at the end of the lease term.
4. The tractor has a six-year economic life.
5. Hatfield has an excellent credit rating.
6. Star offers no warranty on the tractor other than the manufacturer's two-year warranty that is handled directly with the manufacturer.
Under IFRS, which of the following is an indicator of a situation (individually or in combination) that could lead to a lease being classified as a finance lease?
A. If the lessor can cancel the lease, the lessee's losses associated with the cancellation are borne by the lessor.
B. The lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent.
C. Gains or losses from the fluctuation in the fair value of the residual accrue to the lessor.
D. All of the choices are indicators.
Answer
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