Which one of the following statements is true regarding the reassessment of lease classification in the event of a modification?
Changes in the residual value of the underlying asset do not give rise to a new classification of a lease for accounting purposes
Lease modifications that give rise to separate leases would be reassessed for lease classification
Lessors do not reassess lease classifications after initial assessment
Changes in the estimated economic life at any point during the life of the lease give rise to a new classification of a lease for accounting purposes
According to the reference text, changes in the residual value of the underlying asset, estimated economic life, or other accounting estimates do not trigger a reassessment of the lease classification for accounting purposes. Lease modifications that result in a separate lease require reassessment for lease classification. However, lessors are not required to reassess lease classifications after the initial assessment, unless there's a lease change. Therefore, the correct statement is:
Lease modifications that give rise to separate leases would be reassessed for lease classification.
