Which statement about lease accounting models is true?

• A. ASC 842 requires dual models; IFRS 16 uses a single model.
• B. Both standards require recognition of a right-of-use asset in all cases.
• C. ASC 842 distinguishes finance and operating leases; IFRS 16 uses a single model.
• D. Neither standard requires recognition of a right-of-use asset.

Answer: (C)

The main idea is how the standards treat lessee accounting models. Under US GAAP's ASC 842, leases are classified for the lessee into two distinct models: finance leases and operating leases, with different patterns of income statement recognition and balance sheet presentation. In a finance lease, you recognize both a right-of-use asset and a lease liability and you separate the expense into interest on the liability and amortization of the asset, leading to a front-loaded expense pattern. In an operating lease, you still recognize a right-of-use asset and lease liability, but the lease expense is typically recognized on a straight-line basis over the lease Term, giving a different expense pattern.

Under IFRS 16, the lessee accounting model is a single approach for almost all leases: recognize a right-of-use asset and a lease liability, with depreciation of the ROU asset and interest on the lease liability in the income statement (or, depending on presentation, a single lease expense). The key difference is that IFRS 16 eliminates the two-model distinction for lessees.

That’s why this option is the best: it states that ASC 842 uses two models (finance and operating) while IFRS 16 uses a single model for lessee accounting, capturing the fundamental contrast between the standards. The other choices either imply IFRS 16 has two models or mix the concepts in a way that doesn’t align with how the standards are applied to lessees.