On 24 February 20X1, Ready Distributing Ltd., a private company, signed a lease for conveyor equipment. This is specialized equipment that can be used only in Ready’s manufacturing plant. The fair value of the leased equipment is $500,000.

The lease will commence on 1 October 20X1. The lease is for four years with lease payments of $120,000 per year, due at the beginning of each year. The lessor does not require a residual value guarantee. The equipment’s estimated economic life is 10 years.
Ready’s incremental borrowing rate is a nominal 6% per annum, and the interest rate implicit in the lease is 7%.

Required:
Classify the lease as either capital or operating under ASPE. Include an evaluation of all guidelines.