On 1 April 20X7, Fino Co increased the operating capacity of its plant. On the recommendation of the finance director, Fino Co entered into an agreement to lease the plant from the manufacturer. An initial payment is made on 1 April 20X7 and the present value of the future lease payments at that date is 100,000 per annum, commencing on 1 April 20X8. The rate of interest implicit in the lease is 10%. The lease does not transfer ownership of the plant to Fino Co by the end of the lease term and there is no purchase option available.
The finance director questions why the lease payments cannot be simply charged to profit or loss.
In which TWO of the following situations would charging lease payments to profit or loss be the correct accounting treatment, assuming Fino Co takes advantage of any exemptions available?
A、Ownership is transferred at the end of the lease term.
B、The lease is for less than 12 months.
C、The asset has a low underlying value.
D、The asset has been specially adapted for the use of the lessee.