Leases and Fixed Assets

ASC 842, right-of-use assets, capitalization policy, depreciation and impairment.

Reference Notes

Fixed assets, property and equipment, capitalization policy, depreciation and impairment

A purchase that will be used for more than a year is capitalized at its cost, including what it took to bring it into use, and depreciated over its useful life; straight-line is the common method for financial reporting. A written capitalization threshold keeps small purchases in expense and the fixed-asset register readable. The register rolls forward every period, additions and disposals with their gain or loss. When events suggest that an asset group's carrying amount may not be recoverable, it is tested against the undiscounted cash flows it is expected to produce and, if it fails, written down to fair value, with no later reversal (ASC 360-10-35-17 to 35-23).

Source: FASB ASC 360 (360-10-35-17 to 35-23 for impairment)Last revised September 2026General information, not advice

ASC 842 leases: when a lease goes on the balance sheet, right-of-use assets, lease liabilities, short-term leases, finance and operating leases, renting a building or equipment

A lessee records a lease liability for the present value of the remaining payments and a right-of-use asset for the same amount adjusted for prepayments, incentives and initial direct costs, for every lease except the short-term leases it elects, by class of asset, to keep off the balance sheet: a term of twelve months or less, counting renewals it is reasonably certain to take, with no purchase option it is reasonably certain to exercise (ASC 842-20-25-2). A finance lease front-loads its cost as interest and amortization, which sit below EBITDA, while an operating lease records one straight-line cost within operating expenses; under IFRS 16 there is one model for lessees. The discount rate is the rate implicit in the lease when known, otherwise the incremental borrowing rate, and a private company may elect a risk-free rate by class of asset. A private company leasing from an entity under common control, such as an owner's property company, may use the arrangement's written terms to decide whether there is a lease and how to account for it (ASU 2023-01).

Source: FASB ASC 842 (842-10-20, 842-20-25-2, 25-5, 25-6); ASU 2023-01 (common control); IFRS 16 differs: one lessee modelLast revised September 2026General information, not advice

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