What type of lease is described where benefits and risks have been transferred to the lessee, but they do not gain title to the asset?

A capital lease is characterized by the transfer of most of the benefits and risks associated with ownership of an asset from the lessor to lessee, even though the title to the asset remains with the lessor. This type of lease is recognized in a way that reflects the lessee's right to use the asset and the obligation to make future lease payments.

Capital leases often meet specific criteria set out in accounting standards, which may include factors like the duration of the lease being a significant portion of the asset's useful life, or the present value of lease payments exceeding a certain threshold relative to the asset's fair value. Under this arrangement, while the lessee does not own the asset outright, they effectively behave as an owner for accounting and reporting purposes, recognizing the asset and the lease liability on their balance sheet.

In contrast, an operating lease does not convey ownership rights, and the risks and benefits of ownership remain with the lessor, meaning the lessee cannot capitalize the lease on their financial statements. A finance lease is a broader term that may include capital leases but specifically refers to leases that transfer substantially all risks and rewards of ownership. A sales-type lease typically arises in scenarios where the lessor sells the asset to the lessee at the end of