Question

TRUE OR FALSE????

1) At the beginning of a lease agreement, a lessee’s debt to equity ratio and rate of return on assets are both affected regardless of whether the lease is classified as a finance lease or as an operating lease.

2)If the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term, then it must be considered to be an operating lease.

Answer 1

Ans 1 False

Reason:-

Financial lease and operating lease impact debt to equity ration and the rate of return on assets differently.

Ans 2

False

Reason:-

No alternative use of underlying assets does not make such lease as an operating lease but a financial lease condition.

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