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Presentation and disclosure

As noted in LG 4.2.2.2, initial direct costs should be included in the initial measurement of the right-
of-use asset.

Right-of-use assets are subject to the same considerations as other nonfinancial assets, such as
property, plant, and equipment, in classifying them as current or noncurrent in a classified balance
sheet. Consistent with the classification of property, plant, and equipment, the right-of-use asset
should generally be classified as non-current for the entire lease term. However, a right-of-use asset
recorded for a lease with an initial term of 12 months or less (i.e., the short-term lease measurement
and recognition exemption was not taken) should be classified as current.

9.2.1.2 Lease liability

Finance lease and operating lease liabilities should be presented separately from each other and other
liabilities on the balance sheet or disclosed in the notes to the financial statements along with the
balance sheet line items in which those liabilities are included.

Although ASC 842-20-45-1 seems to permit disclosure in the notes in lieu of separate presentation on
the balance sheet, ASC 842-20-45-3 prohibits combining finance lease and operating lease liabilities
on the balance sheet.

Lease liabilities are subject to the same considerations as debt instruments in classifying them as
current or noncurrent in a classified balance sheet. See FSP 12 for debt classification guidance.

9.2.2 Income statement

ASC 842-20-45-4 discusses lessee presentation in the income statement.

ASC 842-20-45-4

In the statement of comprehensive income, a lessee shall present both of the following:

a. For finance leases, the interest expense on the lease liability and amortization of the right-of-use
asset are not required to be presented as separate line items and shall be presented in a manner
consistent with how the entity presents other interest expense and depreciation or amortization of
similar assets, respectively.

b. For operating leases, lease expense shall be included in the lessee’s income from continuing
operations.

9.2.2.1 Finance lease

Interest on the lease liability and amortization of the right- of- use asset

Reporting entities must present interest expense on the lease liability and amortization of the right of
use asset in a manner consistent with how these costs are presented for other acquisitions of financed
assets since they are economically similar. Therefore, interest expense on the lease liability should be
presented with other interest expense in the income statement and amortization of the right-of- use
asset should generally be presented with depreciation and/or amortization expense in the income
statement.

9-3