Accounting Treatment for lease transaction

As per AS 19, if the substantial risk rewards are transferred then it is considered a finance lease, if not then it is an operating lease. The cash flows are a good indicator to determine the same. In the presnt case, the total lease rentals receivable = Rs. 52000 *10 years i.e. 520000 whereas the value of the property seems to be around Rs. 900000 since the lessee is willing / has an option to buy it within 2 years. The total lease rentals are not near the fair value / do not depict an element of financing. Also, the lessee may not buy the property since he has a 'option' and it's not a guarantee. Hence it is a 'operating lease'. You will need to show the asset in your balance sheet and charge depreciation. The lease rentals received will be shown as income in your profit & loss A/c.

Thanks for your prompt reply