Which statement about leased assets is true?

Which statement about leased assets is true?

• A. Only assets legally owned are recognised.
• B. Leased assets must be recognised because the entity controls the use of the asset.
• C. A lease is an expense only.
• D. Leased assets are never recognised.

Answer: (B)

The key idea is that recognition is driven by control of use, not ownership. Under modern accounting rules, a lessee records a right-of-use asset and a lease liability for most leases from the start of the lease because the entity gains the right to use the asset and incurs an obligation to make lease payments over the term. This reflects the economic benefits the entity controls and its obligations, even though it may not own the asset legally. The asset is used and depreciated, while the liability is unwound with interest as payments are made. So, the statement is true because control of the asset’s use—rather than legal ownership—triggers recognition on the balance sheet. The other ideas—only recognizing legally owned assets, treating a lease as purely an expense, or never recognizing leased assets—do not fit how leases are accounted for, since recognition captures both the right to use the asset and the corresponding obligation to make payments.

The key idea is that recognition is driven by control of use, not ownership. Under modern accounting rules, a lessee records a right-of-use asset and a lease liability for most leases from the start of the lease because the entity gains the right to use the asset and incurs an obligation to make lease payments over the term. This reflects the economic benefits the entity controls and its obligations, even though it may not own the asset legally. The asset is used and depreciated, while the liability is unwound with interest as payments are made.

So, the statement is true because control of the asset’s use—rather than legal ownership—triggers recognition on the balance sheet. The other ideas—only recognizing legally owned assets, treating a lease as purely an expense, or never recognizing leased assets—do not fit how leases are accounted for, since recognition captures both the right to use the asset and the corresponding obligation to make payments.