What balance sheet disclosure is required for operating leases?

• A. Disclosure for all operating expenses for the current period
• B. Disclosure for operating leases having initial or remaining terms over one year and for five succeeding years
• C. No disclosure required
• D. Only market value of leased assets

Answer: (A)

Under the older lease accounting rules, operating lease commitments are disclosed on the balance sheet as a schedule of future minimum lease payments. This disclosure covers leases with initial terms or remaining terms over one year and shows the amounts due for each of the next five years and the total thereafter. The purpose is to reveal the magnitude and timing of lease obligations that the company remains bound to, even though those leases are not capitalized on the balance sheet.

This balance sheet disclosure is not about current-period operating expenses, which appear on the income statement. Nor is it about the market value of leased assets. It also isn’t a no-disclosure requirement. The five-year schedule of future minimum lease payments provides the needed transparency into the long‑term lease commitments.

Context: under the current standard, the accounting model changed to recognize a right-of-use asset and a lease liability for operating leases on the balance sheet, with more extensive disclosures about the lease portfolio. But the described five-year minimum payment disclosure reflects how operating leases were presented under the prior framework.