How is the right-of-use asset presented for operating leases under ASC 842?

• A. It is not recognized on the balance sheet.
• B. It is recorded with a corresponding lease liability and depreciated over the lease term.
• C. Only lease payments are expensed.
• D. It is recognized as a reduction to equity.

Answer: (B)

Under ASC 842, a lessee recognizes both a right-of-use asset and a lease liability for operating leases at the lease start. The right-of-use asset is recorded alongside a corresponding lease liability and is depreciated (amortized) over the lease term. The lease liability is measured as the present value of future lease payments and is reduced as payments are made, with interest recognized on the liability. On the income statement, the lease cost for operating leases is shown on a straight-line basis over the term, reflecting the combined effect of amortizing the RoU asset and the interest on the liability. So, the right-of-use asset is presented on the balance sheet together with a lease liability and is depreciated over the lease term.