- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 8. Topics in Long-Term Liabilities and Equity
- Subject 3. Accounting and Reporting by the Lessee
CFA Practice Question
How will a lease that involves both land and buildings and a bargain purchase option be treated?
B. The buildings will be capitalized and amortized but the land portion is an operating lease.
C. The buildings will be capitalized and amortized but the land portion is capitalized and not amortized.
A. The entire lease will be an operating lease since land does not have a useful life.
B. The buildings will be capitalized and amortized but the land portion is an operating lease.
C. The buildings will be capitalized and amortized but the land portion is capitalized and not amortized.
Correct Answer: C
The normal rules for capitalization and amortization of capital assets apply here. Land is not amortized.
User Contributed Comments 5
| User | Comment |
|---|---|
| Gigem | It might be a good idea to touch on what a bargain purchase option is in the notes if it is going to be part of the test. |
| fool | It's in the notes: that means the leasse has the option to buy the property at the end of the leasing period for a good price. It's one of 4 conditions. |
| magicchip | land is not amortized, and bargain purchase makes it a capital lease. |
| johntan1979 | That's right, fool. |
| Seancfa1 | hohoho |