The short-term lease election permits a lessee to omit right-of-use asset and lease-liability recognition for an eligible class of underlying assets. Eligibility is measured using the accounting lease term at commencement, not the contract's caption.
Test eligibility before applying policy
The lease term must be 12 months or less, and the lease cannot include a purchase option that the lessee is reasonably certain to exercise. Renewal and termination periods included in the lease term count toward the limit. The election is an accounting policy by class of underlying asset and must be applied consistently. The lessee generally recognizes lease payments as expense over the lease term and discloses the election and related commitments as required.
For example, a contract states a 12-month base period and gives the lessee a six-month renewal option. If economic factors make exercise reasonably certain, the accounting term is 18 months and the lease is not eligible. A different 10-month equipment lease can qualify if its asset class has the election and no reasonably certain purchase option exists.
The short-term route is a recognition election rather than a third lease classification. It does not excuse lease identification, term analysis, or population controls. Read ASC 842-20-25-2 and the related policy disclosure in ASC 842-20-50-3.
Put the concept to work
Analyze this concept
- Test a supplied lease term and purchase-option conclusion for the short-term definition and document the class-level election, expense, and disclosure consequences.
Learning resources
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Build on these ideas
- Lease term and options — Analyze
To analyze this concept: Required. The short-term definition uses the accounting lease term, not the captioned contract period alone.