1. The Financial Statement Layout Split
This represents one of the largest structural differences between modern IFRS and US GAAP:
┌─────────────────────────┬───────────────────────────────┬───────────────────────────────┐
│ Metric / Account        │ IFRS 16 (Single Model)        │ US GAAP ASC 842 (Dual Model)  │
├─────────────────────────┼───────────────────────────────┼───────────────────────────────┤
│ Lease Classification    │ All leases treated as         │ Split into FINANCE or         │
│                         │ FINANCE leases                │ OPERATING leases              │
├─────────────────────────┼───────────────────────────────┼───────────────────────────────┤
│ Income Statement        │ Separate Depreciation (ROU)   │ Single combined Operating     │
│ Presentation            │ and Interest Expense          │ Lease Cost line item          │
├─────────────────────────┼───────────────────────────────┼───────────────────────────────┤
│ Cash Flow Presentation  │ Interest = Operating/Financing│ Single total payment within   │
│                         │ Principal = Financing         │ Operating Cash Flows          │
└─────────────────────────┴───────────────────────────────┴───────────────────────────────┘

2. Classification Criteria under US GAAP (ASC 842)
Under US GAAP, a lease is classified as a finance lease if, at commencement, it meets any of the following five criteria:
  • Transfer of ownership: The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
  • Purchase option: The lease grants the lessee an option to purchase the asset that the lessee is reasonably certain to exercise.
  • Lease term test: The lease term is for the major part (≥ 75%) of the remaining economic life of the asset.
  • Present value test: The present value of the sum of lease payments equals or exceeds substantially all (≥ 90%) of the fair value of the asset.
  • Specialized asset: The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the term.

If none of these criteria are met, US GAAP classifies the contract as an operating lease, preserving linear lease expenses while keeping the asset and liability on the balance sheet.
 
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