Under ASPE 3065, how are operating leases treated?

Under ASPE 3065, how are operating leases treated?

• A. Leases are classified as capital or operating using specific criteria. If capital, the leased asset and lease liability are recognized. If operating, the lease payments are expensed as incurred.
• B. Leases are classified as debt or equity; all payments expensed.
• C. Leases always recognized as operating expenses.
• D. Leases recognized as PPE only.

Answer: (A)

Under ASPE 3065, leases are classified as either capital (finance) leases or operating leases. If the lease transfers substantially all the risks and rewards of ownership, it is a capital lease, and you recognize a leased asset and a lease liability on the balance sheet; the asset is depreciated and the liability is amortized with interest. If the lease does not meet those criteria, it is an operating lease, and lease payments are expensed as incurred over the lease term, with no asset or liability recognized on the balance sheet (aside from any prepaid rent). This matches the described treatment: capital lease results in recognizing both asset and liability, while operating leases result in expensing payments as incurred. The other options conflict with ASPE by suggesting leases are classified only as debt/equity, always expensed, or recognized as PPE only.

Under ASPE 3065, leases are classified as either capital (finance) leases or operating leases. If the lease transfers substantially all the risks and rewards of ownership, it is a capital lease, and you recognize a leased asset and a lease liability on the balance sheet; the asset is depreciated and the liability is amortized with interest. If the lease does not meet those criteria, it is an operating lease, and lease payments are expensed as incurred over the lease term, with no asset or liability recognized on the balance sheet (aside from any prepaid rent). This matches the described treatment: capital lease results in recognizing both asset and liability, while operating leases result in expensing payments as incurred. The other options conflict with ASPE by suggesting leases are classified only as debt/equity, always expensed, or recognized as PPE only.