Lease (Plant & Machinery) Page 1 of 8

Keywor ds: Defini tion of Lease , Leasing, Hiring and Ren ting , Obliga tions of Supplie r of Asse t, User of Ass e t, Hi re ,
Purchas e Compan y/ Lessor in cases of Loan, Su pplier’s Credi t, Hi re Purchase and Leasing , Lea s ing as an
Ins tance o f Bailmen t, Na tu re of the Bail men t Ag reemen t, Fea tu res of Bail men t, Con trac ts La w on Bailmen t,
Leas ing Rules , Types of Leases and their charac te ris tics , S teps in the s truc tu ring of a Lease Con tra c t, Leas ing
from poin t o f vie w of Lessor/ Lesse e, Trea tmen t of Leased Asse ts in Compan y Accoun ts – Accoun tin g Prac tice
fo r Leas ed Plan t and Machiner y as per Ind ian Accou n ting S tanda rd , Assessmen t of Lease rela ted risk
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1 One difference between a fina ncia l lease and opera ting lease is tha t…
A The re is a of ten a call op tion in a financial lease
B The re is of ten an op tion to bu y in an ope ra ting lease
C An opera ting lease is often cancella ble by the lessee
D A financial lease is often cancellable by the lessee.
2 The type of lease tha t includes a third par ty, a lender , is ca lled a (n) …
A Sale and leaseback
B Di rec t leas ing arrangemen t
C Le vera ged lease
D Ope ra ting lease
3 A dir ec t lease, a sa le and leaseback, a nd a levera ged lease are a ll exa mples of …
A Ope ra ting lease
B Fina nc ia l lease
C full-s ervice leases
D Off- balance shee t me th ods of financing.
4 How s hould the minimum lease pa yments (‘M LP ’) of a la nd and building lease get a ppor tioned?
A Trea t en ti rel y as building
B Trea t en ti rel y as land
C Appor tion M LP between land a nd buildings based on fa ir va lue of leasehold interes ts
D Ap po r tion MLP be tween land and buildings based on managemen t’s judgemen t
5 Wha t type of lease is presumed, when the present va lue of minimum lease pa yments is
a ppr oxima tely equa l to the fa ir va lue of the lease assets?
A Ope ra ting lease
B Fina nc ia l lease
C Sale and leaseback
D Le ve raged lease
6 Whic h of the following is not a n indica tion a lease is a finance lease?
A The leas e trans fers ownership of the asse t to the l essee at the end of the lease
B The lease ter m is for a s hor t par t of the economic life of the asset
C The leas ed asse ts are specialized in na ture
D The p res en t value of mini mum lease pa ymen t amou n ts to subs tan tiall y all of the fai r value of the as s et
7 Opera ting leases are mos tly ______ a gr eements .
A Long te rm
B Medium te rm
C S hor t ter m
D Ve rbal
8 When a lease trans fers subs ta ntia lly a ll the r is ks and rewar ds of ownership to lessee, this is
ca lled…
A Sale and leaseback

Valuation of Plant & Machinery : Sanjay Patel : +91 96246 69492 : swamibeic@gmail.com
201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
Lease (Plant & Machinery) Page 2 of 8

B Le ve raged lease
C Ope ra ting lease
D Fina nc ia l lease
9 In a la nd lease, if ti tle does not pass a t the end of a lease to the lessee, it is norma lly tr ea ted as:
A Sale and leaseback
B Le ve raged lease
C Opera ting lease
D Financial lease
10 Fina nc e leases are accounted for in a s imilar ma nner to …
A Credit tr a nsactions
B Cas h trans ac tions
C Sale and leaseback
D Loan fo rgi veness
11 A leased asset s hould be deprecia ted over the…
A S hor ter of the lease term and the asset’s useful life
B Longe r o f the lease te rm and the asse t’s useful life
C En ti re leas e te rm
D Us eful li fe o f the asse t
12 Whic h of the following would not ma ke a dis t inction between a ‘hire purchase’ a nd a ‘nor ma l’
purc hase?
A Purchas er pa ys for i tem b y ins tallmen ts ove r a period of ti me
B Nor ma lly tr ade discounts are not offered on hire purchase
C Cos t to b u ye r is likel y to be highe r than i t would be for a normal pu rchase
D As s e t does not belong to pu rchaser when deli ver y i s recei ved from supplier
13 Na ture of hire purchase a greement is …
A Ag reemen t of sale
B Op tio n to transfe r
C Option to bu y
D Op tio n to s ell
14 The bu yer of goods on hire purchase basis is known as …
A Seller
B Hi re s ales
C Hirer
D Hi re vendo r
15 In hire purchase, the title of the pr oper ty or goods is tra nsferred to the hire purchaser…
A At th e time of agreemen t of hi re pu rchase
B At th e time of fi rs t ins tallmen t paid by hi re pu rchaser
C At the time of las t ins ta llment pa id by hir e purchaser
D An y ti me
16 Whic h of the following s ta tements character izes a n opera ting lease?
A The les s ee records deprecia tion and in teres t.
B The les s ee records the lease obliga ti on rela ted to the leased asse t
C The lessor records deprecia tion a nd lease revenue
D The les s or transfers ti tle of the leased proper ty to the lessee for the
dura tion o f the lease te rm
17 The ma jor a dva nta ge of leas ing is tha t it ____________.
Valuation of Plant & Machinery : Sanjay Patel : +91 96246 69492 : swamibeic@gmail.com
201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
Lease (Plant & Machinery) Page 3 of 8

A Provides flexible financing

B Pro vides lo we r pa ymen ts
C Avo ids ris ks of obsolescence
D Al l o f the abo ve
18 Whic h of the following is not a character is tic of a fina ncia l lease?
A Financial leases are non -cancellable
B Financial leases are commonl y used for leasing major fi xed asse ts
C Financial leases are usuall y for all or mos t of the expec ted li fe of the asset
D The lessor is a lwa ys respons ible for ma intenance and insura nce
19 Whic h of the following is not a character is tic of a n opera ting lease ?
A The te rm o f the lease is less than the useful li fe of th e asset
B An ope ra ting lease is cancellable
C An opera ting lease is us ua lly for a per iod grea ter tha n 5 years
D The pa r ty responsible for main tenance, insurance and ta xes is subjec t to nego tia tion
20 Whic h of the following is not a type of leas e?
A Conditiona l sa les a greement
B Ope ra ting lease
C Le ve raged lease
D Sale-leas eback arrangemen t
21 Whic h of the following is never included in the a na lys is of whether an asset should be leased or
purc hased?
A Rene wal op tion
B Incremental opera ting income
C Main tenance clauses
D Purchas e op tion
22 Whic h of the following is a n a dva nta ge of leasing?
A Off- balance-sheet financing
B Les s cos tl y financing
C Fle xible financing
D Al l of these
22 The a mount to be r ecor ded as the cos t of a n asset under finance lease is equa l to the
A Pres en t va lue of the minimum lease pa ymen ts
B Present va lue of the minimum lease pa yments or the fa ir va lue of the asset, whichever is lower
C Pres en t va lue of the minimum lease pa ymen ts plus th e presen t va lue of an y ungua ran teed res idual val ue
D Carrying value of the asse t on the lessor's books
23 If the res idua l va lue of a leased asset is guaranteed by a thir d par ty …
A I t is trea ted b y the lessee as no residual value
B The thi rd par ty is also liable for an y lease pa ymen ts not paid b y the lessee.
C The ne t in ves tmen t to be recovered b y the lessor is reduced.
D It is tr ea ted by the lessee as a n a dditiona l pa yment a nd by the lessor as rea lized a t the end of the
lease ter m.
24 In __________ lease, the r is k of obsolescence is assumed to the lessee.
A Fina nc e
B Ope ra ting
C Bo th (a) & (b)
D None o f (a ) & (b)
Valuation of Plant & Machinery : Sanjay Patel : +91 96246 69492 : swamibeic@gmail.com
201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
Lease (Plant & Machinery) Page 4 of 8

25 When the lessee is a llowed to exchange equipment leased out whenever the origina l asset has to
be sent to the lessor for some repair or ma intenance, s uch type of lease is ca lled …
A Wrap leas e
B Imp or t leas e
C S wa p lease
D Le ve raged lease
25 In hire purchase deprecia tion ca n be cla imed by the …
A Hirer
B Ve ndor
C Financier
D Al l o f ab o ve
26 In hire purchase, till the pa yment of las t ins ta llment, a mount pa id by hirer is tr ea ted as …
A In te res t
B Rent
C Cas h price
D Al l o f ab o ve
27 In __________ lease, leas ing compa ny ass umes ris k of obsolescence
A Le ve rage
B Opera ting
C Finance
D Cros s Boarder
28 Whic h lease contracts is us ua lly non ca ncellable ?
A Le ve rage
B Ope ra ting
C Fina nc e
D Cros s Boarder
29 Equipment lease tra nsaction is trea ted as contract of … … .
A Ba ilment
B Pledge
C Guaran tee
D Ag enc y
30 _______ lease is for a s hor t per iod.
A Le ve rage
B Opera ting
C Finance
D Cros s Boarder
31 In _______ lease, ma intena nce expenses a nd ta xes are born by the lessee .
A Fina nc e
B Ope ra ting
C Bo th (a) & (b)
D None o f (a ) & (b)
32 In _______ lease, ma intena nce expenses a nd ta xes are born by the les sor .
A Finance
B Opera ting
C Bo th (a) & (b)
D None o f (a ) & (b)
Valuation of Plant & Machinery : Sanjay Patel : +91 96246 69492 : swamibeic@gmail.com
201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
Lease (Plant & Machinery) Page 5 of 8

33 In hire purchase, who ca n be enjoying sa lva ge va lue of asset?

A Hirer
B Ve ndor
C Financier
D Al l o f ab o ve
34 Ba ilment mea ns…
A Deliver y of goods for s hor t per iod upon the contract
B Deli ve ry o f g oods for long peri od upon the con trac t
C Partl y deli ve ry of goods
D None
35 Whic h is a not essentia l element of contr act of ba ilme nt?
A Re tu rn o f goods in specific time
B Deli ve ry o f g oods
C Doing con trac t
D Purc hase of goods
36 In the contract of ba ilment the person deliver ing the goods is ca lled…
A Bailee
B Ba ilor
C Seller
D Bu ye r
37 In Ba ilment, Lien mea ns…
A Righ t to pu rchase the goods
B Righ ts to s ell the goods
C To r eta in goods in his possession
D Righ t to des tro y the goods
38 Whic h is a n essentia l element of contract of ba ilment?
A Tr a ns fer of possession
B Trans fe r o f goods
C Trans fe r o f owne rship
D Trans fe r o f proper ty
39 The deli ver y of goods by one person to a nother for some purpose, upon a contract a nd tha t th ey
sha ll, when the purpose is accomplis hed, be retur ned or other wise disposed of b y a ccounting to
the direc tions of the person deliver ing them, then it is ca lled …
A Con ti ngen t Con trac t
B Pledge
C Ba ilment
D Con trac t o f Indemni ty
40 A ba ilment invol ves the tr ans fer of
A Ti tle to , bu t not p ossession of, personal prope r ty
B Poss ess ion of, bu t no t ti tle to, real prope r ty
C Possession of, but not ti tle to, persona l pr oper ty
D Ti tle to , bu t not p ossession of, real p roper ty
41 Ba ilment is a pplica ble for…
A Mova ble asset
B Immo vable asse t
C Curren t as s et
Valuation of Plant & Machinery : Sanjay Patel : +91 96246 69492 : swamibeic@gmail.com
201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
Lease (Plant & Machinery) Page 6 of 8

D Fi xed as s e t
42 If o wnership of the asset tra ns fers to the lessee by the end of the lease term tha n it is ca lled…
A Fina nc e lease
B Ope ra ting lease
C Bo th (a) & (b)
D None o f (a ) & (b)
43 The lease ter m is for the ma jor par t of the economic life of the asset even if ti tle is not
tr ans ferred than it is ca lled…
A Fina nc e lease
B Ope ra ting lease
C Bo th (a) & (b)
D None o f (a ) & (b)
44 If the lessee ca n ca ncel the lease, the lessor ’s losses associa ted with the ca ncella tion are borne
by the lessee tha n it is ca lled…
A Fina nc e lease
B Ope ra ting lease
C Bo th (a) & (b)
D None o f (a ) & (b)
45 Lessees sha ll recognize fina nce leases as _______ a nd ________ in their ba lance s heets .
A As s e t, deb t
B Curren t as s et, deb t
C As s ets , lia bilities
D Curren t as s et, liabili ties
46 Under a n opera ting lease , lease pa yments sha ll be recogni zed by lessee as ________ on a
s tra ight-line basis over the lease ter m .
A Pa yable
B Pro fi t
C Income
D Expense
47 Lessor s ha ll r ecogni ze assets held under a finance lease in their ba lance sheets and present
them as a __________ a t a n a mount equa l to the net inves tment in the lease .
A Income
B Expens e
C Rec eiva ble
D Pa yable
48 Lessor s ha ll present _________ s ubject to opera ting leases in their ba la nce s heet a cc ording to
the na ture of the __________.
A As s e t, liabili ty
B As s et, asset
C Expens e, liabili ty
D Expens e, asse t
49 Who c a n c har ge deprecia tion in the books of account under opera ting lease?
A Lessor
B Les s ee
C Bo th
D None o f abo ve

Valuation of Plant & Machinery : Sanjay Patel : +91 96246 69492 : swamibeic@gmail.com
201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
Lease (Plant & Machinery) Page 7 of 8

50 Who c a n c har ge deprecia tion in the books of account under fina nce lease?
A Les s or
B Lessee
C Bo th
D None o f abo ve
51 Leas e income fr om opera ting leases sha ll be recognized b y lessor as ________ on a s tra ight-line
basis over the lease ter m .
A Gain
B Pro fi t
C Inc ome
D Al l o f ab o ve
52 A ___________ tr ansaction invol ves the s ale of an asset a nd the leasing back of the same asset.
A Con trac t
B Sale & purchase
C Leas e
D Sa le and leaseback
54 An a greement whereby the lessor conveys to the lessee in r etur n for a pa yment or ser ies of
pa yments the r igh t to use an asset for a n a greed per iod of time is ca lled…
A Con trac t
B Sale & purchase
C Leas e
D Sale and leaseback
55 A lessee signs a lease agreement s o tha t a piece of proper ty ca n be used for the specified per iod
of time. Fr om a n accounting perspective, wha t a re the two types of leases?
A Fi xed leas es and va riable leases
B Ope ra ting leases and finance leases
C Va riable leases and finance leases
D Sale and leaseback
56 The minimum lease pa yment is defined as including a ll of the following components except …
A Bargain pu rchase op tion
B Guaran teed residual value
C The leas e pa ymen ts occurring o ver the lease te rm
D Contingent r enta ls
57 The pr esent va lue of the minimum lease pa yments will be equa l to the fa ir va lue of the leased
asset if the lease arrangement conta ins a bar gain purchase option or …
A Con ti ngen t ren t
B 100% guar anteed res idua l va lue
C Execu to ry cos t
D Leas e incen ti ve amoun t
58 Where a lessee does not expect to purchase a leased asset, the asset mus t be deprecia ted
across…
A Its useful life
B The full economic li fe of the asse t
C Period no t e xceeding 5 yea rs
D The s hor te r of the lease term or 2 0 yea rs
59 In fina nce lease, a t end of lease term lessor can tr a ns fer the ownership to lesse e a t less tha n the

Valuation of Plant & Machinery : Sanjay Patel : +91 96246 69492 : swamibeic@gmail.com
201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)
Lease (Plant & Machinery) Page 8 of 8

fa ir va lue…
A Ma y
B Ma y no t
C Ma y or ma y not
D None o f abo ve
60 It is a n obliga tion of supplier of equipment in s upplier's credit type leas ing tra nsaction
A To provide equipment
B To pa y fo r principal amoun t
C To pa y fo r in te res t on p rincipal amoun t
D To ma ke h ypo theca tion of equip men t
61 A s et of s elf-ma de and mutua lly a cceptable terms of a tra nsaction consis tent wi th la w is known
as …
A Leas e trans ac tion
B Liabili ties of lessee
C Liabili ties of lessor
D Leas e a greement

Valuation of Plant & Machinery : Sanjay Patel : +91 96246 69492 : swamibeic@gmail.com
201, Vasundhara Apartment, Opposite M K High School, Alkapuri, Vadodara, Gujarat, India
(please ignore typographical or grammatical or other error, if any)