Distinguish between a finance lease and an operating lease indicating how they should be treated in the financial statements as per International Accounting Standard (IAS)...

1. Finance leases - A lease that transfers substantially all the risks and rewards to ownership of an asset.
Lessors shall recognize assets held under a finance lease in their balance sheets and present them as a receivable at an amount equal to the net investment in the lease. The recognition of finance income shall be based on a pattern reflecting a constant periodic rate of return on the lessor’s net investment in the finance lease. Manufacturer or dealer lessors shall recognize selling profit or loss in the period, in accordance with the policy followed by the entity for outright sales. If artificially low rates of interest are quoted, selling profit shall be restricted to that which would apply if a market rate of interest were charged. Costs incurred by manufacturer or dealer lessors in connection with negotiating and arranging a lease shall be recognized as an expense when the selling profit is recognized.

2. Operating lease - Lease other than a finance lease. Lease payments under an operating lease shall be recognized as an expense on a straight line basis over the lease term. Lessors shall present assets subject to operating leases in their balance sheets according to the nature of the asset. The depreciation policy for depreciable leased assets shall be consistent with the lessor’s normal depreciation policy for similar assets, and depreciation shall be calculated in accordance with IAS 16 and IAS 38. Lease income from operating leases shall be recognized in income on a straight-line basis over the lease term, unless
another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished.

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Wilfykil answered the question on February 8, 2019 at 05:21