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Scope

Partial definition from ASC 842 Glossary

The term inventory embraces goods awaiting sale (the merchandise of a trading concern and the
finished goods of a manufacturer), goods in the course of production (work in process), and goods to
be consumed directly or indirectly in production (raw materials and supplies). This definition of
inventories excludes long-term assets subject to depreciation accounting, or goods which, when put
into use, will be so classified.

2.2.1 Short-term lease measurement and recognition exemption for lessees

As discussed in ASC 842-20-25-2, a lessee may elect not to apply the recognition requirements of ASC
842 to short-term leases. This election should be made by class of underlying asset. If a lessee chooses
to elect this short-term lease measurement and recognition exemption, it should recognize the lease
payments in net income on a straight-line basis over the lease term. Variable lease payments should be
recorded in the period in which the obligation for the payment is incurred.

The ASC 842 Glossary defines a short-term lease.

Definition from ASC 842 Glossary
Short-Term Lease: A lease that, at the commencement date, has a lease term of 12 months or less and
does not include an option to purchase the underlying asset that the lessee is reasonably certain to
exercise.

Leases often include options to either extend the term of the lease (commonly referred to as a renewal
option) or to terminate the lease prior to the contractually defined lease expiration date (commonly
referred to as a termination option). The existence of either a renewal or termination option requires
lessees and lessors to determine, at lease commencement, the length of the lease term. As discussed in
LG 3.3.3.1, renewal or termination options that are reasonably certain of exercise (or non-exercise) by
the lessee are included in the lease term. Therefore, a one-year lease with a renewal option that the
lessee is reasonably certain to exercise is not a short-term lease. See LG 3.3.3.1 for information on
determining the term of a lease.

A lessee should reassess whether a short-term lease continues to qualify for the short-term lease
measurement and recognition exemption when certain events occur. See LG 5.4 for more information.

2.3 Definition of a lease

In a lease, one party obtains the right to use an asset legally owned by another party for a period of
time. It is this right of use that distinguishes a lease from other executory contracts. The rights of a
lessee are different from those of an owner of an asset or a party to a service agreement that does not
transfer a right of use. Nonetheless, a lessee does have certain rights that receive accounting
recognition as an asset (with a corresponding liability for the obligation to make payments for that
right of use) because a lessee has control over an economic resource and is benefiting from the use of
the asset.

ASC 842-10-15-3 defines a lease as follows.

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