What happens to the machinery at the end of a non-cancellable lease?

At the end of a non-cancellable lease, the machinery is typically returned to the lessor. This is a fundamental characteristic of operating leases, where the lessee does not gain ownership of the asset. Instead, the lease agreement specifies that the lessee pays for the right to use the machinery for a predetermined period. Once this period ends, the machinery must be returned in accordance with the lease terms.

This arrangement allows the lessor to retain ownership and the residual interest in the asset, which can then be leased again or sold. This option reinforces the operational financing nature of the lease, distinguishing it from capital or finance leases, where the lessee may eventually own the asset.

The other choices do not align with the standard practices regarding non-cancellable leases. Selling the machinery for residual value or discarding it would not occur unless specified in exceptional lease terms, while acquiring the machinery as the lessee's property is contrary to the nature of a non-cancellable lease.