15.2 Lessee Disclosure Requirements

ASC 842-20

50-1 The objective of the disclosure requirements is to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. To achieve that objective, a lessee shall disclose qualitative and quantitative information about all of the following:

Its leases (as described in paragraphs 842-20-50-3(a) through (b) and 842-20-50-7 through 50-10)
The significant judgments made in applying the requirements in this Topic to those leases (as described in paragraph 842-20-50-3(c))
The amounts recognized in the financial statements relating to those leases (as described in paragraphs 842-20-50-4 and 842-20-50-6).

50-2 A lessee shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the various requirements. A lessee shall aggregate or disaggregate disclosures so that useful information is not obscured by including a large amount of insignificant detail or by aggregating items that have different characteristics.

In addition to considering the above disclosure requirements for lessees, an entity that is both a lessee and lessor or engages in sale-and-leaseback transactions will need to review the lessor and sale-and-leaseback requirements separately (see Sections 15.3 and 15.4, respectively). Further, as noted in ASC 842-20-50-2, a lessee should consider the appropriate level of disclosure aggregation or disaggregation so that it avoids including “a large amount of insignificant detail or . . . aggregating items that have different characteristics.”

Illustrative Example — Disclosure Disaggregation

The following are examples of ways a lessee may choose to disaggregate its lessee disclosures:

The lessee disclosure requirements can be further subdivided into the following topics:

Information about the nature of an entity’s leases (including subleases) (Section 15.2.1).
- General description of leases (Section 15.2.1.1).
- Basis and terms and conditions on which variable lease payments are determined (Section 15.2.1.2).
- Terms and conditions of options to extend or terminate leases (Section 15.2.1.3).
- Residual value guarantees (Section 15.2.1.4).
- Restrictions or covenants imposed by leases (Section 15.2.1.5).
Leases that have not yet commenced (Section 15.2.2).
Significant assumptions and judgments (Section 15.2.3).
- Whether a contract contains a lease (Section 15.2.3.1).
- Allocation of consideration in a contract (Section 15.2.3.2).
- Discount rate (Section 15.2.3.3).
Amounts recognized in the financial statements (Section 15.2.4).
- Finance lease cost (Section 15.2.4.1).
- Operating lease cost (Section 15.2.4.2).
- Short-term lease cost (Section 15.2.4.3).
- Variable lease cost (Section 15.2.4.4).
- Sublease income (Section 15.2.4.5).
- Net gain or loss from sale-and-leaseback transactions (Section 15.2.4.6).
- Cash paid for amounts included in measurement of lease liabilities (Section 15.2.4.7).
- Supplemental noncash information (Section 15.2.4.8).
- Weighted-average remaining lease term (Section 15.2.4.9).
- Weighted-average discount rate (Section 15.2.4.10).
Maturity analysis of liabilities (Section 15.2.5).
Lease transactions with related parties (Section 15.2.6).
Practical-expedient disclosure related to short-term leases (Section 15.2.7).
Practical-expedient disclosure related to not separating lease and nonlease components (Section 15.2.8).
Electing transition practical expedients:
- Hindsight practical expedient (Section 16.5.1).
- Practical expedient package (Section 16.5.2).
Election not to restate comparative periods in the period of adoption (Section 16.1.1).

15.2.1 Information About the Nature of an Entity’s Leases (Including Subleases)

ASC 842-20

50-3 A lessee shall disclose all of the following:

Information about the nature of its leases, including:
1. A general description of those leases.
2. The basis and terms and conditions on which variable lease payments are determined.
3. The existence and terms and conditions of options to extend or terminate the lease. A lessee should provide narrative disclosure about the options that are recognized as part of its right-of-use assets and lease liabilities and those that are not.
4. The existence and terms and conditions of residual value guarantees provided by the lessee.
5. The restrictions or covenants imposed by leases, for example, those relating to dividends or incurring additional financial obligations.

A lessee should identify the information relating to subleases included in the disclosures provided in (1) through (5), as applicable. . . .

The information that a lessee discloses about the nature of its leases should be consistent with the disclosure objective of ASC 842 and generally is qualitative (e.g., the extent to which terms or conditions exist and a description of those terms or conditions). As noted in ASC 842-20-50-3, a lessee should also consider providing such disclosures for subleases when appropriate.

Below is a discussion of, and examples illustrating, each of the requirements in (1)–(5) of ASC 842-20-50-3(a) above.

15.2.1.1 General Description of Leases

ASC 842-20

50-3 A lessee shall disclose all of the following:

Information about the nature of its leases, including:
1. A general description of those leases. . . .

ASC 842 does not explicitly define the phrase “general description of leases.” This disclosure requirement is intentionally broad, and a lessee should consider the level of detail it needs to provide to satisfy the disclosure objective as well as how much emphasis to place on this and other disclosure requirements. The lessee should also consider whether its existing disclosures meet this requirement, since ASC 840 did not include a disclosure objective (though it did contain the “general description” disclosure requirement).

Illustrative Example — General Description of an Entity’s Leases

15.2.1.2 Basis and Terms and Conditions on Which Variable Lease Payments Are Determined

ASC 842-20

50-3 A lessee shall disclose all of the following:

Information about the nature of its leases, including: . . .
2. The basis and terms and conditions on which variable lease payments are determined. . . .

As discussed in Section 6.3, only some variable lease payments (those based on an index or rate) are included in the initial and subsequent measurement of a lessee’s lease liability and ROU asset. Because variable lease costs are treated in different ways, the determination of what type of variability exists within a lease contract and whether that variability is included in, or excluded from, the recognized lease liability is critical to understanding lease costs and to achieving the disclosure objective (i.e., to understanding the timing and uncertainty of the entity’s cash flows). Therefore, the terms and conditions that create, and expose the entity to, that variability provide the user with information about amounts that are not recorded in the balance sheet because variable lease payments not based on an index or rate are not included in the measurement of the ROU asset or lease liability.

Although it is not expressly required to do so, it may be helpful for an entity to describe the sources of the variability in two separate groups: (1) amounts included in the lease liability and (2) variability that is excluded. In addition, an entity must explain the types of variability that exists in its contracts, and this explanation should include a discussion of key terms and conditions. For example, an entity may encounter variability because a retail store location’s rent is determined on the basis of a percentage of its store’s sales. From that simple description, a user may understand the direct relationship between the sales and the rent increases. Sometimes, however, the variability may be more complex, in which case an entity may need to provide additional explanation and align key financial metrics.

Illustrative Example — Basis and Terms and Conditions on Which Variable Lease Payments Are Determined

Variable lease payments that are based on an index or rate:

Variable lease payments not based on an index or rate:

15.2.1.3 Terms and Conditions of Options to Extend or Terminate Leases

ASC 842-20

50-3 A lessee shall disclose all of the following:

Information about the nature of its leases, including: . . .

3. The existence and terms and conditions of options to extend or terminate the lease. A lessee should provide narrative disclosure about the options that are recognized as part of its right-of-use assets and lease liabilities and those that are not. . . .

The requirement to disclose terms and conditions related to options to extend or terminate leases should increase the transparency of the lessee’s rights and obligations. This requirement is in line with the disclosure objective because it allows users to more easily understand the future cash flows expected to be incurred (i.e., extension) or eliminated (i.e., termination) if the entity elects these options. The extent of such disclosures may depend on how integral a lease is to a business.

Illustrative Example — Terms and Conditions of Options to Extend or Terminate Leases

15.2.1.4 Residual Value Guarantees

ASC 842-20

50-3 A lessee shall disclose all of the following:

Information about the nature of its leases, including: . . .
4. The existence and terms and conditions of residual value guarantees provided by the lessee. . . .

The ASC master glossary defines a residual value guarantee as “[a] guarantee made to a lessor that the value of an underlying asset returned to the lessor at the end of a lease will be at least a specified amount.” As further discussed in Section 6.7, with respect to such a guarantee, a lessee is only required to include the amounts whose payment is probable in the measurement of the lease liability and ROU asset.

Therefore, as outlined above, a lessee must explain the existence and terms and conditions of any residual value guarantees associated with its leases (e.g., the full amount that a lessee has guaranteed under its leases). Providing such information is consistent with the disclosure objective since the lessee’s future cash outflows may be affected if an asset’s value at the end of the lease term is less than the residual value that the lessee has guaranteed for the lessor. To the extent that amounts have been deemed probable and have therefore been included in the lease liability, it may be appropriate for an entity to explain its determination of such amounts — in particular, the circumstances that may subsequently change the amount included in the liability or future amounts that will be owed to the lessor.

Illustrative Example — Residual Value Guarantees

15.2.1.5 Restrictions or Covenants Imposed by Leases

ASC 842-20

50-3 A lessee shall disclose all of the following:

Information about the nature of its leases, including: . . .
5. The restrictions or covenants imposed by leases, for example, those relating to dividends or incurring additional financial obligations. . . .

This requirement is similar to the requirement in ASC 840-10-50-2(c), under which a lessee must disclose “[r]estrictions imposed by lease agreements, such as those concerning dividends, additional debt, and further leasing.” Therefore, an entity would typically have already been disclosing this information for existing leases. Nevertheless, an entity should consider the extent to which such information is in line with ASC 842’s disclosure objective. In addition, while the requirements in ASC 840 focused on the cash flows directly related to the lessee’s use of the underlying asset (i.e., the cash flows associated with the expected rental payments for that use), the requirement in ASC 842 is a bit broader and an entity may want to consider whether the lease imposes other restrictions or covenants that constrain the entity’s cash flows for other purposes (e.g., restricting the payment of dividends, restricting the use of additional leases or other debt financing).

Illustrative Example — Restrictions or Covenants Imposed by Leases

15.2.2 Leases That Have Not Yet Commenced

ASC 842-20

50-3 A lessee shall disclose all of the following: . . .

b. Information about leases that have not yet commenced but that create significant rights and obligations for the lessee, including the nature of any involvement with the construction or design of the underlying asset. . . .

In complying with the requirement to disclose “[i]nformation about leases that have not yet commenced but that create significant rights and obligations for the lessee,” an entity is providing users with information that will affect the entity’s future cash flows as a result of leasing activities that would not yet appear on the balance sheet, in particular as a lease liability. The requirements specifically highlight disclosures related to two common circumstances: (1) a forward-starting lease and (2) a future lessee’s involvement in the “construction or design” of an asset that it will lease upon completion of construction at some future date (e.g., a build-to-suit arrangement).

A forward-starting lease is a lease whose inception precedes the time when the asset is made available for use by the customer (i.e., lease commencement). As discussed in Section 3.3, a forward-starting lease may result from an arrangement that includes a front-loaded substitution right such that when that substitution right expires, the customer and the supplier will have an identified asset that they can use to assess whether the contract is or contains a lease. Note that a lease amendment (that is accounted for as a modification) that extends the term but involves the same asset is not a forward-starting lease while a lease amendment that grants an additional right of use in the future (e.g., by adding a new floor to an existing lease of office space) would be considered a forward-starting lease.

As discussed in Chapter 11, there are specific recognition and measurement requirements that apply when a future lessee is involved in the construction or design of an asset that it will lease in the future. As a result of those requirements, the future lessee may need to recognize the asset during the construction period and then assess the arrangement in accordance with the sale-and-leaseback requirements outlined in Chapter 10.

Illustrative Example — Leases That Have Not Yet Commenced

15.2.3 Significant Assumptions and Judgments

ASC 842-20

50-3 A lessee shall disclose all of the following: . . .

c. Information about significant assumptions and judgments made in applying the requirements of this Topic, which may include the following:

1. The determination of whether a contract contains a lease (as described in paragraphs 842-10-15-2 through 15-27)

2. The allocation of the consideration in a contract between lease and nonlease components (as described in paragraphs 842-10-15-28 through 15-32)

3. The determination of the discount rate for the lease (as described in paragraphs 842-20-30-2 through 30-4).

The requirement for an entity to disclose the significant assumptions and judgments it used in applying ASC 842 in itself involves judgment. That is, the three types of information about significant assumptions and judgments listed above in ASC 842-20-50-3 (and discussed below) may not always be applicable and, in some cases, another significant assumption or judgment may be critical and material to an entity’s financial statements.

15.2.3.1 Whether a Contract Contains a Lease

A lessee should consider disclosing information about the significant assumptions and judgments used to determine whether a contract is or contains a lease. (See Chapter 3 for more information.) Specifically, a customer must consider whether (1) explicitly or implicitly identified assets have been deployed in the contract and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs HAFWP the asset is used during the term of the contract. The standard indicates that, when preparing such disclosures, the lessee should consider the discussion in ASC 842-10-15-2 through 15-27 regarding the definition of a lease. For example, we believe that if a customer considers its involvement in the design of the asset when determining whether a contract contains a lease, significant judgment may be required and disclosure may be warranted.

Illustrative Example — Whether a Contract Contains a Lease

15.2.3.2 Allocation of Consideration in a Contract

A lessee should consider disclosing information about the significant assumptions and judgments used to determine its allocation of consideration in a contract or contracts. (See Chapter 4 for more information.) Specifically, the stand-alone prices used to allocate consideration may be estimated and subject to significant fluctuations over time. For example, such estimates may be significantly lower or higher than another entity’s estimates or the estimates may change in future periods and be incorporated into new leases. (Keep in mind that while estimates made to allocate consideration in a lease in the current period may differ from those made in prior periods for different leases, a lessee is not required to revisit its estimates made in prior periods for different leases.) An entity should consider describing the method used to determine stand-alone prices and how those estimates may involve less or greater judgment for various lease types (e.g., leases based on geography or an asset such as real estate/equipment whose value may fluctuate depending on economic factors).

ASC 842 indicates that, when preparing such disclosures, a lessee should consider the discussion in ASC 842-10-15-28 through 15-32 regarding allocation of consideration in a contract.

Illustrative Example — Allocation of Consideration in a Contract

15.2.3.3 Discount Rate

A lessee should consider disclosing information about the significant assumptions and judgments used to determine its discount rate(s). For example, a lessee may need to disclose information regarding its determination of the incremental borrowing rate, such as collateral assumptions, the term used, and the economic environment in which the lease is denominated. To the extent that a portfolio approach is used to determine discount rates, an entity should consider disclosing information about the composition of the portfolios. (See Chapter 7 for more information about discount rates.)

Connecting the Dots

Discount Rate

In comments in recent years, the SEC staff has requested that registrants explain and revise their disclosures about the determination of the discount rate used to measure the lease liability and ROU assets recorded in accordance with ASC 842. In addition, since ASC 842-20-50-4(g)(4) requires lessees to disclose the weighted-average discount rate for both operating and finance leases, a lessee should consider whether the discount rate it used for some of its leases differs significantly from the discount rate it used for other leases and is therefore affecting the weighted-average calculation disclosed. In these situations, a lessee may want to consider providing additional disclosures about the discount rates that are affecting the lessee’s disclosed weighted-average rate. Further, a lessee with multiple asset classes of leases should consider disclosing how the weighted-average discount rate was determined for each asset class, including any significant assumptions or judgments used in that calculation.

For more information about SEC comment letter trends related to the disclosure requirements in ASC 842, see Deloitte’s Roadmap SEC Comment Letter Considerations, Including Industry Insights.

15.2.4 Amounts Recognized in the Financial Statements

ASC 842-20

50-4 For each period presented in the financial statements, a lessee shall disclose the following amounts relating to a lessee’s total lease cost, which includes both amounts recognized in profit or loss during the period and any amounts capitalized as part of the cost of another asset in accordance with other Topics, and the cash flows arising from lease transactions:

Finance lease cost, segregated between the amortization of the right-of-use assets and interest on the lease liabilities.
Operating lease cost determined in accordance with paragraphs 842-20-25-6(a) and 842-20-25-7.
Short-term lease cost, excluding expenses relating to leases with a lease term of one month or less, determined in accordance with paragraph 842-20-25-2.
Variable lease cost determined in accordance with paragraphs 842-20-25-5(b) and 842-20-25-6(b).
Sublease income, disclosed on a gross basis, separate from the finance or operating lease expense.
Net gain or loss recognized from sale and leaseback transactions in accordance with paragraph 842-40-25-4.
Amounts segregated between those for finance and operating leases for the following items:
1. Cash paid for amounts included in the measurement of lease liabilities, segregated between operating and financing cash flows
2. Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets
3. Weighted-average remaining lease term
4. Weighted-average discount rate.

50-5 See paragraphs 842-20-55-11 through 55-12 for implementation guidance on preparing the weighted-average remaining lease term and the weighted-average discount rate disclosures. See Example 6 (paragraphs 842-20-55-52 through 55-53) for an illustration of the lessee quantitative disclosure requirements in paragraph 842-20-50-4.

While the disclosure requirements discussed in Section 15.2.3 are largely qualitative, those addressed in this section are mostly quantitative. When preparing such disclosures, a lessee will need to gather certain quantitative information about amounts (1) recognized in the financial statements and (2) derived from the underlying leases recognized in the financial statements. Such amounts should include those that are recognized in profit or loss during the period and capitalized as part of the cost of another asset in accordance with other U.S. GAAP (e.g., a cost that is capitalized into inventory and that will be recognized as a cost of sales when the inventory is subsequently sold to a customer).

Given the different ways such costs are treated (e.g., inclusion in and exclusion from recognition on the balance sheet), the FASB found it appropriate to disaggregate lease costs to increase the transparency of the cash flows expected from leasing. Further, the Board provides the example below from ASC 842-20-55-53 to illustrate the disclosure requirements from ASC 842-20-50-4.

ASC 842-20

Illustration of Lessee Quantitative Disclosure Requirements

55-52 Example 6 illustrates how a lessee may meet the quantitative disclosure requirements in paragraph 842-20-50-4.

Example 6 — Lessee Quantitative Disclosure Requirements in Paragraph 842-20-50-4

55-53 The following Example illustrates how a lessee may meet the quantitative disclosure requirements in paragraph 842-20-50-4.

15.2.4.1 Finance Lease Cost

ASC 842-20

Finance lease cost, segregated between the amortization of the right-of-use assets and interest on the lease liabilities. . . .

The finance lease cost disclosed represents the entire amount recognized for finance leases that are recognized on the balance sheet (i.e., excluding variable lease payments presented as interest expense or a component of income from continuing operations). In providing this disclosure, the lessee must disaggregate the total finance lease cost to indicate the amount recorded for the amortization of the ROU asset and the amount recognized as interest. The lessee should also disclose the financial statement line item in which these amounts are included if they are not presented separately on the face of the financial statements. Note that as discussed in Section 14.2.2.1, we would accept presentation of variable lease payments in the statement of comprehensive income as either (1) interest expense or (2) a component of income from continuing operations (e.g., lease expense). Lessees should disclose their presentation accordingly.

15.2.4.2 Operating Lease Cost

ASC 842-20

b. Operating lease cost determined in accordance with paragraphs 842-20-25-6(a) and 842-20-25-7. . . .

The operating lease cost disclosed represents the entire amount recognized for operating leases that are recognized on the balance sheet (i.e., excluding variable lease expense). This cost is determined in accordance with ASC 842-20-25-6(a) and ASC 842-20-25-7, which state, in part:

25-6 After the commencement date, a lessee shall recognize all of the following in profit or loss, unless the costs are included in the carrying amount of another asset in accordance with other Topics:

a. A single lease cost, calculated so that the remaining cost of the lease (as described in paragraph 842-20-25-8) is allocated over the remaining lease term on a straight-line basis unless another systematic and rational basis is more representative of the pattern in which benefit is expected to be derived from the right to use the underlying asset (see paragraph 842-20-55-3), unless the right-of-use asset has been impaired in accordance with paragraph 842-20-35-9, in which case the single lease cost is calculated in accordance with paragraph 842-20-25-7 . . . .

25-7 After a right-of-use asset has been impaired in accordance with paragraph 842-20-35-9, the single lease cost described in paragraph 842-20-25-6(a) shall be calculated as the sum of the following:

Amortization of the remaining balance of the right-of-use asset after the impairment on a straight-line basis, unless another systematic basis is more representative of the pattern in which the lessee expects to consume the remaining economic benefits from its right to use the underlying asset
Accretion of the lease liability, determined for each remaining period during the lease term as the amount that produces a constant periodic discount rate on the remaining balance of the liability.

The entire amount recognized as a “single lease cost” is the expense recognized for the operating lease during the period. Note that while the expense recognition pattern for an operating lease differs from that for a finance lease model (i.e., “interest” expense plus straight-line expense of the ROU asset), such “single lease cost” is not disaggregated into its underlying component parts (i.e., amortization of the ROU asset and the change in the lease liability) for presentation purposes.

Connecting the Dots

Operating Lease Cost When ROU Asset Is Impaired

As discussed in Section 8.4.4, in accordance with ASC 842-20-25-7, after an impairment is recognized on an ROU asset for a lessee’s operating lease, the “straight-line” lease expense is no longer maintained as the ROU asset is subsequently amortized on a straight-line basis (unless another systematic basis is more representative of the pattern of use). Despite “breaking” the straight-line lease pattern, the operating lease expense is still presented as a “single lease cost” and would be included in the above quantitative disclosure of operating lease cost rather than being broken into its two component parts for disclosure as a finance lease cost.

15.2.4.3 Short-Term Lease Cost

ASC 842-20

c. Short-term lease cost, excluding expenses relating to leases with a lease term of one month or less, determined in accordance with paragraph 842-20-25-2. . . .

While lessees may elect not to recognize short-term leases on the balance sheet (i.e., leases with a lease term of 12 months or less), lessees are required to disclose short-term lease cost determined under ASC 842-20-25-2. However, expenses related to leases with a lease term of one month or less are excluded from this requirement.

Although we expect that most entities will find respite in the “one month or less” exclusion, entities may sometimes find it more burdensome to extract leases with a term of one month or less and may prefer to disclose expenses related to all short-term leases. We believe that an entity may elect to include all expenses related to leases with a term of one month or less (or all short-term lease expenses by class of underlying asset) in the short-term lease expense disclosure (despite the explicit exclusions). We understand that the one month or less exclusion was intended to provide relief and therefore believe that it would not be inconsistent with the disclosure principles to disclose all of the short-term lease expenses (including expenses related to leases with a term of one month or less) if doing so would be less burdensome. Entities should consider disclosing their policy if leases with a term of one month or less are included in their short-term lease expense disclosures and the effect is material.

15.2.4.4 Variable Lease Cost

ASC 842-20

d. Variable lease cost determined in accordance with paragraphs 842-20-25-5(b) and 842-20-25-6(b). . . .

The variable lease cost disclosure should include the costs discussed in ASC 842-20-25-5(b) and ASC 842-20-25-6(b) — that is, variable lease payments that are not included in the measurement of the lease liability. Such payments may include amounts that are entirely variable and therefore never would have been included in the measurement of the lease liability, or they may represent the difference between (1) the variable amount based on an index or rate and therefore reflected in the lease liability and (2) what is actually incurred. The disclosure requirements do not stipulate that variable lease cost related to finance leases must be disclosed separately from that for operating leases; however, in some instances, entities may find it helpful to perform such disaggregation. In addition, an entity may have short-term lease costs that are also considered variable lease costs. In these circumstances, we believe that it would be acceptable for an entity to include such costs in either the short-term lease cost disclosure or the variable lease cost disclosure. An entity should apply the selected approach consistently between reporting periods and should disclose the approach taken, if material.

Connecting the Dots

Variable Lease Cost

If an entity discloses that it elected to use the practical expedient of not separating lease and nonlease components for real estate leases and also discloses that it has triple net leases (i.e., leases in which the lessee pays a single fixed payment for rent but the lessee’s share of property taxes, insurance, and CAM is generally variable), the entity would be expected to disclose the variable lease cost related to such triple net leases. This is because the property taxes, insurance, and CAM are all deemed to be part of the lease component.

15.2.4.5 Sublease Income

ASC 842-20

e. Sublease income, disclosed on a gross basis, separate from the finance or operating lease expense. . . .

A lessee should disclose any sublease income it has received on a gross basis separately from its operating and finance lease expenses. That is, cash inflows received as a sublessor must be disclosed, on a gross basis, separately from cash outflows the entity incurs with respect to that same asset that it leases as a lessee in a head lease. See Section 14.3.1.2.1 for discussion of whether it would be appropriate to net head lease expense with sublease income in the income statement.

15.2.4.6 Net Gain or Loss From Sale-and-Leaseback Transactions

ASC 842-20

f. Net gain or loss recognized from sale and leaseback transactions in accordance with paragraph 842-40-25-4. . . .

To the extent applicable, a seller-lessee should disclose any recognized net gains or losses associated with any sale-and-leaseback transactions for assets previously owned (or recognized as a result of the lessee’s involvement in the asset’s construction, as described in Chapter 11) and sold by the lessee.

15.2.4.7 Cash Paid for Amounts Included in Measurement of Lease Liabilities

ASC 842-20

g. Amounts segregated between those for finance and operating leases for the following items:

1. Cash paid for amounts included in the measurement of lease liabilities, segregated between operating and financing cash flows. . . .

A lessee should separately disclose its cash paid for finance and operating lease liabilities during the reporting period. In some cases, these amounts will be separately presented in the statement of cash flows and such presentation may be sufficient to meet the disclosure requirement. Nonetheless, an entity should consider separate disclosure, especially if such amounts are not separately presented in the statement of cash flows in their own activity line items.

15.2.4.8 Supplemental Noncash Information

ASC 842-20

g. Amounts segregated between those for finance and operating leases for the following items: . . .

2. Supplemental noncash information on lease liabilities arising from obtaining right-of-use assets . . . .

A lessee records an ROU asset upon entering into operating and finance leases. At lease commencement, the lessee would account for the lease transaction (other than any lease payments made at lease commencement) as a noncash investing and financing transaction, as discussed in ASC 230-10-50-4. The standard requires separate disclosure of the supplemental noncash information related to this activity. Amounts for noncash activities related to operating leases should be disclosed separately from those for finance leases.

In addition to ASC 842-20-50-4(g)(2), other areas of U.S. GAAP include requirements related to providing noncash disclosures. For example, ASC 230-10-50-3 states, in part, that “[i]nformation about all investing and financing activities of an entity during a period that affect recognized assets or liabilities but that do not result in cash receipts or cash payments in the period shall be disclosed.” Further, in paragraph 70 of the Basis for Conclusions of Statement 95, the FASB contemplated disclosure requirements related to situations in which “transactions result in no cash inflows or outflows in the period in which they occur but generally have a significant effect on the prospective cash flows of a company.”

We believe that the word “obtaining,” as used in ASC 842-20-50-4(g)(2), should be interpreted as including all noncash increases (debits) to an ROU asset. In addition, events that affect a recognized asset and liability as well as prospective cash flows, including noncash decreases to an ROU asset (credits), should be disclosed as a noncash transaction in light of the guidance in ASC 230-10-50-3 and the Basis for Conclusions of FASB Statement 95 (discussed above).

Accordingly, the requirement to disclose a noncash transaction would also be triggered in the following circumstances:

Any lease modification that (1) grants the lessee an additional ROU asset or (2) removes an ROU asset (i.e., physical increases or decreases related to a lessee’s right to use the underlying leased assets). The modification does not need to be accounted for as a separate contract.
Any other modification or reassessment event that results in increases or decreases (debits or credits) to the ROU asset.

15.2.4.9 Weighted-Average Remaining Lease Term

ASC 842-20

g. Amounts segregated between those for finance and operating leases for the following items: . . .

3. Weighted-average remaining lease term . . . .

Weighted-Average Remaining Lease Term and Weighted-Average Discount Rate Disclosures

55-11 The lessee should calculate the weighted-average remaining lease term on the basis of the remaining lease term and the lease liability balance for each lease as of the reporting date.

A lessee must disclose — separately for both its operating leases and its finance leases — the weighted-average remaining lease term. Below is an example illustrating how to calculate the weighted-average lease term as of the reporting date. In this example, the reporting date is December 31, 2032, and the entity has six leases outstanding: three operating leases and three finance leases.

As calculated above, in this example, the weighted-average lease term for the operating lease liabilities is approximately 3 years (or approximately 39 months), and the weighted-average lease term for the finance lease liabilities is approximately 4.5 years (or approximately 54 months).

15.2.4.10 Weighted-Average Discount Rate

ASC 842-20

g. Amounts segregated between those for finance and operating leases for the following items: . . .

4. Weighted-average discount rate.

Weighted-Average Remaining Lease Term and Weighted-Average Discount Rate Disclosures

55-12 The lessee should calculate the weighted-average discount rate on the basis of both of the following:

The discount rate for the lease that was used to calculate the lease liability balance for each lease as of the reporting date
The remaining balance of the lease payments for each lease as of the reporting date.

A lessee must disclose — separately for both its operating leases and its finance leases — the weighted-average discount rate. Below is an example illustrating how to calculate the weighted-average discount rate as of the reporting date (in the example below, the reporting date is December 31, 2026).

15.2.5 Maturity Analysis of Liabilities

ASC 842-20

50-6 A lessee shall disclose a maturity analysis of its finance lease liabilities and its operating lease liabilities separately, showing the undiscounted cash flows on an annual basis for a minimum of each of the first five years and a total of the amounts for the remaining years. A lessee shall disclose a reconciliation of the undiscounted cash flows to the finance lease liabilities and operating lease liabilities recognized in the statement of financial position.

A lessee must disclose a maturity analysis on an undiscounted basis, aggregating all of its finance lease liabilities separately from its aggregated operating lease liabilities. Paragraph BC287 of ASU 2016-02 provides further details regarding the disclosure requirements in ASC 842-20-50-6 and states, in part:

Topic 842 requires that a lessee disclose a maturity analysis of the contractual lease payments included in its lease liabilities at the reporting date to assist users of financial statements in understanding and evaluating the nature and extent of liquidity risks. A lessee should disclose, at a minimum, the amounts due on an annual basis for each of the first five years after the reporting date, plus a lump sum for the remaining years. Those maturity analyses are similar to the maturity analyses that were required in previous GAAP.

In the below example, as of the reporting date (December 31, 20X6), the entity has five leases — three operating and two finance — and has presented a maturity table summarizing those lease payments. The total amount of lease payments, on an undiscounted basis, is reconciled to the lease liability in the statement of financial position (discounted cash flows).

15.2.6 Lease Transactions With Related Parties

ASC 842-20

50-7 A lessee shall disclose lease transactions between related parties in accordance with paragraphs 850-10- 50-1 through 50-6.

Pending Content (Transition Guidance: ASC 842-10-65-8)

50-7A When the useful life of leasehold improvements to the common control group determined in accordance with paragraph 842-20-35-12A exceeds the related lease term, a lessee shall disclose the following information:

The unamortized balance of the leasehold improvements at the balance sheet date
The remaining useful life of the leasehold improvements to the common control group
The remaining lease term.

Lease transactions between related parties should be disclosed in accordance with the guidance in ASC 850. In accordance with ASC 850, a lessee should consider disclosing the nature of the related-party lease, the related-party relationship, and the terms of the lease that are affected by the relationship.

See Chapter 17 for a discussion of ASU 2023-01, which provides guidanceon leasing arrangements between entities under common control.

15.2.7 Practical-Expedient Disclosure Related to Short-Term Leases

ASC 842-20

50-8 A lessee that accounts for short-term leases in accordance with paragraph 842-20-25-2 shall disclose that fact. If the short-term lease expense for the period does not reasonably reflect the lessee’s short-term lease commitments, a lessee shall disclose that fact and the amount of its short-term lease commitments.

When a lessee elects the short-term lease recognition exemption by class of underlying asset (which results in off-balance-sheet accounting for the lease), it should disclose that it has done so. While a lessee may continue to apply a short-term lease exemption, if its activities in the reporting period do not give financial statement users a reasonable reflection of upcoming liabilities, the lessee should disclose that fact and adequately disclose the amount of its short-term lease commitments.

15.2.8 Practical-Expedient Disclosure Related to Not Separating Lease and Nonlease Components

ASC 842-20

50-9 A lessee that elects the practical expedient on not separating lease components from nonlease components in paragraph 842-10-15-37 shall disclose its accounting policy election and which class or classes of underlying assets it has elected to apply the practical expedient.

When a lessee elects the practical expedient under which it does not need to separate lease components from nonlease components, it should disclose this fact as well as the “class or classes of underlying assets” for which it has made the election. (See further discussion of this practical expedient in Section 4.3.3.1.)

Confidential and Proprietary — for Use Solely by Authorized Personnel

This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.