In this paper we will extend Smith's (1997) two-component aspect theory and develop a two-tiered model of situation aspect, in which situation aspect is modelled as verb classes at the lexical level and as situation types at the sentential level. Our two-tiered model of situation aspect was motivated by the deficiencies of Vendler (1967) and Smith (1997). Vendler (1967) proposes a four-fold division of verbs into states, activities, accomplishments and achievements. The Vendlerian taxonomy basically works at the lexical level (c.f. Verkuyl, 1993:33), though it also involves whole predicates rather than verbs alone. As such, Vendler has to put run and walk under the category of activity and put run a mile and walk to school under the category of accomplishment, thus making the lexicon unnecessarily large. Smith (1997), on the other hand, focuses her aspectual classification directly on "idealised situations" at the sentential level. Smith (1997:54-55) also suggests a set of rules to govern the interaction between verbs and their arguments in the composition process of situation aspect. However, as she has not proposed an aspectual classification of verbs at the lexical level, these rules cannot be applied easily, if at all. The deficiencies inherent in Vendler (1967) and Smith (1997) explain the two-tiered approach taken to modelling situation aspect in this paper. The Vendlerian approach works well at the lexical level, but not at the sentential level. Conversely the approach of Smith works well at the sentential level but not at the lexical level. Our two-level approach to situation aspect seeks to bridge this gap, operating at both the lexical and the sentential levels. In our model, verbs are classified in neutral contexts (c.f. Lys and Mommer, 1986) based on a five-way classifier system which is composed of [+/-dynamic], [+/-durative], [+/-bounded], [+/-telic] and [+/-result]. Situation types are the composite result of the rule-based interaction between verb classes and their arguments/adjuncts at the lexical, core-sentence and full-sentence levels. The paper develops a more refined model of verbs and situation types, proposes a dozen of rules, which are tested using an English corpus and a Chinese corpus, and gives a detailed account of the individual roles played by verbs and arguments/adjuncts in the composition processes of situation types.