As19

When the lessor transfers substantial portion of risks and rewards which is incidental to ownership of an asset to the leesee it is called finance leese. it is to be noted tat ownership does not inculde legal ownership.

Following are the situations -

1. The lessee will get legal ownership of asset at the end of the term.

2. the lease term covers the major part of life of asset

3. the asset can be used by the lessee only without major modifications.

4. lessee has an option to but the asset at a price lower than its expected FV at the date on which option will be exercised

Additional Point For Finance Lease

5. Asset is of Special nature which can be used by lease only.

In a logical way if u wanna think.. Imagine u go to a showroom to Purchase a BIKE worth 100000. U dnt have enough money. SO u take it on lease and pay money in instalments. Even though u are paying in instalments.. You are the owner of the Asset.. This is a Finance Lease.. 

Nw suppose u take a building on lease for 5 years. U pay rent. This is expense for the company and they are not the owners of the building. This is operating lease..