This video discusses the 5 classification tests that are used to determine whether a lease should be classified as a finance lease or an operating lease. If a lease is noncancelable and meets at least one of the 5 tests, then it should be classified as a finance lease by the lessee. From a theoretical standpoint, this means that the lessor is effectively transferring ownership or control of the leased property to the lessee. The 5 tests are:
1. Transfer of ownership test
2. Bargain purchase option test
3. Lease term test
4. Present value test
5. Alternative use test
Details of each test are discussed in the video.