Which statement best describes the contrast between IFRS 16 and ASC 842 in lessee lease accounting?

• A. IFRS 16 uses a single model with a right-of-use asset and lease liability; ASC 842 uses dual models (finance and operating) with differences in expense pattern.
• B. IFRS 16 uses dual models; ASC 842 uses a single model.
• C. Both standards use dual models.
• D. Neither standard requires recognition of a right-of-use asset.

Answer: (A)

The main idea being tested is how lessee accounting differs between IFRS and US GAAP. Under IFRS 16, almost every lease is accounted for using a single model: the lessee records a right-of-use asset and a lease liability on the balance sheet, and over the lease term the cost shows up as depreciation of the right-of-use asset and interest on the lease liability. There isn’t a separate operating versus finance lease distinction for the lessee.

Under ASC 842 (US GAAP), the lessee classification framework creates two models. If a lease is classified as a finance lease, the lessee depreciates the right-of-use asset and recognizes interest on the lease liability, similar to a financed purchase. If a lease is classified as an operating lease, the lessee records a single lease expense over the term (typically straight-line), while still recognizing the right-of-use asset and the lease liability on the balance sheet. This combination of two models and the different expense patterns is the key contrast with IFRS 16.

So the statement reflects the core difference: IFRS 16 uses one model with ROU asset and lease liability, while ASC 842 uses two models with differing expense patterns.