Which of the following is a classification of leases?

A finance lease is a classification that transfers substantially all the risks and rewards of ownership of an asset to the lessee. Under accounting standards such as IFRS 16 and ASC 842, a finance lease is characterized by elements like the lease term covering the majority of the asset's economic life, the present value of lease payments reflecting a substantial portion of the asset's fair value, or the lessee having the option to purchase the asset at a bargain price at the end of the lease term.

This classification is significant because it impacts how leases are recorded on the financial statements. For finance leases, both the leased asset and corresponding lease liability are recognized on the balance sheet. This differs from other types of leases, such as operating leases, where the asset and liability are not recorded, affecting the lessee's financial ratios and leverage profile.

The other options—compound, regulatory, and fixed leases—do not align with standard classifications recognized in financial reporting. These terms do not represent established lease classifications under generally accepted accounting principles or international financial reporting standards.