Q.Distinguish between an operating lease and a financial lease (any two points).

The clearest distinguishing points are the length/cancellability of the lease and who bears the risk of the asset's obsolescence.

An operating lease and a financial lease are the two broad kinds of lease, and they differ chiefly in how long the arrangement runs and who ends up bearing the risks associated with owning the asset.

An operating lease is comparatively short-term and cancellable by either party before the end of its stated term. Because the lease is short and the lessor typically re-leases the same asset to other lessees over its life, the lessor continues to bear the risks of maintenance and of the asset becoming technologically obsolete. This form of lease suits assets that a business needs only for a limited period, or where the technology changes quickly, such as office equipment or vehicles. …

Assuming ownership itself transfers under a financial lease — legal title still remains with the lessor; only th …