Under income-tax provisions, depreciation on lease asset is allowed to:

Sorry but I don't share your opinion. Mr Patel asked about lease in genral. The answer A is correct under the hypothesis that we are in an operating lease case. However, at a tax level in many countries appling similar standards to the IAS17 (Leases), there is a separation between the operating lease and the finance lease.

In a finance lease the depreciation is allowed at both the accountant and tax levels to the lessee (if the tax laws recongnize the IAS17 treatment). I can copy to you the main accounting principle for the lessee in a finance lease:

Accounting by lessees

The following principles should be applied in the financial statements of lessees:

    at commencement of the lease term, finance leases should be recorded as an asset and a liability at the lower of the fair value of the asset and the present value of the minimum lease payments (discounted at the interest rate implicit in the lease, if practicable, or else at the entity's incremental borrowing rate) [IAS17.20]

    finance lease payments should be apportioned between the finance charge and the reduction of the outstanding liability (the finance charge to be allocated so as to produce a constant periodic rate of interest on the remaining balance of the liability) [IAS17.25]

    the depreciation policy for assets held under finance leases should be consistent with that for owned assets. If there is no reasonable certainty that the lessee will obtain ownership at the end of the lease – the asset should be depreciated over the shorter of the lease term or the life of the asset [IAS17.27]

    for operating leases, the lease payments should be recognised as an expense in the income statement over the lease term on a straight-line basis, unless another systematic basis is more representative of the time pattern of the user's benefit [IAS17.33]

The answer is:  A) Lessor

the person to whom risks and rewards has been transfered or who have to bear al gains and losses.

In case of operating lease, lessor (A), it could be lessee (b) in case of finance lease

Lessor - A

Option A Lessor

b= lessee

Agree with Ayman.

Who is to bear the loss of the asset? He is eligible for-depreciation as per the terms of the lease agreement and the type of the lease.

Correct answer is  a- Lessor

Its depend on the local regulation. In some countries Tax authorities do not allow depreciation on leased assets. But conceptually it is should be allowed to Lessee in case of finance lease.