Final answer:
The statement is False because a dealer's profit indicates a sales type lease rather than a direct financing lease. The classification depends on criteria that include transferring the risks and rewards of ownership, among others.
Step-by-step explanation:
The statement 'If a lease contains a dealer's profit, it is classified as a direct financing lease for the lessor' is False. In accounting standards, for a lease to be classified as a direct financing lease, certain criteria need to be met, one of which involves the lessor's profit or loss. The existence of a dealer's or manufacturer's profit alone does not automatically qualify a lease as a direct financing lease. Instead, if a lease allows for a profit or includes a dealer's profit, this fact is more indicative of a sales type lease for the lessor, provided that other criteria align with this classification.
To be classified as a direct financing lease, the transaction must meet various criteria, including that the lease transfers substantially all the risks and rewards incidental to ownership of the leased asset. In a direct financing lease, the lessor records the net investment in the lease and earns interest income over the lease term, reflecting the reimbursement of the cost and the realization of the interest at the effective interest rate. On the other hand, a sales-type lease involves the manufacturer's or dealer's profit, as it combines the elements of both selling the asset and providing financing.