CLFP Collections Practice Exam

A finance (capital) lease is identified when the lessee effectively takes on the ownership-like risks and rewards of the asset. Under traditional criteria, this includes scenarios where ownership transfers at the end of the term, the lease term covers a major portion of the asset’s economic life, or the present value of lease payments is close to the asset’s fair value. It also includes situations where the asset is so specialized for the lessee that only they can use it without significant modifications. The statement that the asset is not customized for the lessee does not indicate a finance lease; in fact, lack of customization suggests the asset could be used by others and does not reflect the transfer of ownership-like economics. Therefore, not being customized is not a criterion for a finance lease.