Which leases are exempt from on-balance-sheet recognition under the proposed changes?

• A. Leases longer than 12 months.
• B. Leases under 12 months.
• C. Leases with no transfer of ownership.
• D. All leases.

Answer: (B)

Short-term leases are exempt from on-balance-sheet recognition, because the proposed changes include a practical expedient for leases with a term of 12 months or less. This lets lessees skip recording a right-of-use asset and a lease liability and instead treat the lease cost as a lease expense over the term, reducing administrative burden for very short arrangements. As a result, leases that run 12 months or shorter qualify for the exemption. Leases longer than 12 months still must be recognized on the balance sheet because their economic impact justifies capitalization. Ownership transfer terms don’t change the exemption—it's the lease term length that determines whether the recognition is exempt.