Lease Classification

The following lease classifications are available in NetLease:

• Operating: a lease classification where under ASC 842 a right-of-use asset and a lease liability will be recorded on the balance sheet with monthly adjustments to the ROU asset and lease liability. A single lease expense is recognized, typically on a straight-line basis. 
• Financing: a lease classification where under ASC 842 a right-of-use asset and a lease liability will be recorded on the balance sheet and amortization and interest expense will be recorded on the income statement. If any of the five criteria in ASC 842-10-25-2 are met (transfer of ownership, purchase option, lease term is a major part of the economic life of the asset, the present value of the minimum lease payments amounts to at lease substantially all of the fair value of the leased asset, alternative use) the lease should be classified as a financing lease. 
  • IFRS 16: all IFRS leases are financing leases if they are not classified as short-term/low value
• Short-Term/Low Value: a lease classification where lease payments are recognized on a straight-line basis over the lease term. Refer to the bullet points below for when this lease classification can be used. 
  • IFRS 16
    • Low Value: a lease classification under IFRS 16 where leases with a value of $5,000 or less do not have to be recorded on the balance sheet.
  • ASC 842
    • Short-Term: a lease classification for leases that are one year or less that can be applied to an entire class of leases but not on a lease-by-lease basis. If this practical expedient is elected, short-term leases do not need to be recorded on the balance sheet.
• Sublease-Operating: A lease classification for an arrangement where a leased asset is re-leased by the original lessee to another party. 
• Sublease-Financing: This lease type is only applicable to IFRS and GASB users.
• Cash basis: a lease classification for cash basis accounting where the lease payment will equal the lease expense. Please note this is not an appropriate approach according to US GAAP.