According to IAS 17 lease can be of two types i.e. finance lease or operating lease. The differentiating factor between two is to determine which party bears the risks and rewards associated with the asset. If the legal form is in conflict with economic substance of business events then for accounting purposes substance of transaction is preferred. IAS 17 clarifies the differences between the two lease types by providing different examples and how to do the accounting under the two types. If the asset is acquired under finance lease then asset is recognized in the books of lessee and accounted for as explained under IAS 17 Leases. However, in case of operating lease, lessee records only the rentals.