Which statement best describes a true lease in relation to ownership?

Which statement best describes a true lease in relation to ownership?

• A. Lessor retains ownership and lessee uses asset
• B. Lessee owns asset after term
• C. Ownership transfers automatically at end
• D. Asset is financed by government

Answer: (A)

Ownership stays with the lessor while the lessee has the right to use the asset for a defined term in exchange for rent. In a true lease, the owner bears the risks and rewards of owning the asset, and the asset typically returns to the owner at the end of the term (unless there’s a separate option to purchase). This distinguishes it from arrangements where the lessee becomes the owner after the term or where ownership transfers automatically. It also isn’t about government financing. So the statement that the lessor retains ownership and the lessee uses the asset captures the essence of a true lease.

Ownership stays with the lessor while the lessee has the right to use the asset for a defined term in exchange for rent. In a true lease, the owner bears the risks and rewards of owning the asset, and the asset typically returns to the owner at the end of the term (unless there’s a separate option to purchase). This distinguishes it from arrangements where the lessee becomes the owner after the term or where ownership transfers automatically. It also isn’t about government financing. So the statement that the lessor retains ownership and the lessee uses the asset captures the essence of a true lease.