Under ASC 842, a lessee may elect not to recognize a Right-of-Use (ROU) asset and Lease Liability for which type of lease?

Q: What mistakes do candidates make on this CPA question?

Confusing US GAAP (Short-term only) with IFRS (Short-term AND Low-value).

Answer options:

Short-term leases (12 months or less) with no purchase option reasonably certain to be exercised.

Operating leases.

Leases of low-value assets.

Finance leases.

How to approach this question

Recall the practical expedients/exemptions. US GAAP allows an exemption for Short-Term Leases (<12 months).

Full Answer

A.Short-term leases (12 months or less) with no purchase option reasonably certain to be exercised.✓ Correct

Lessees can elect not to recognize ROU assets and liabilities for short-term leases (lease term 12 months or less) that do not include a purchase option reasonably certain to be exercised.

Common mistakes

Confusing US GAAP (Short-term only) with IFRS (Short-term AND Low-value).

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