Is a Right-of-Use Asset Current or Non-Current? (ASC 842)
The only real exception is the short-term lease election. If a lease is 12 months or less at the start and you choose that election, nothing goes on the balance sheet at all, so there is no ROU asset to classify. That is the one-line answer. If you want to understand why, keep reading, because the "why" is where people get confused in reviews and audits.
I ran into this question while building a lease schedule during articleship. The client had a mix of equipment leases and one office lease. I put the whole right-of-use asset under non-current assets without thinking twice, and that part was correct. My reviewing senior then asked a different question: "What happens in the next twelve months?" That question belongs to the lease liability, which needs a current portion, and it is the part most explainers skip.
Last updated: October 16, 2026. I corrected the earlier version of this article, which suggested part of the ROU asset could move to current assets. ASC 842 does not work that way, and the sections below now reflect the standard.
What a right-of-use asset actually represents
Under ASC 842 (and IFRS 16 for international reporting), a lessee does not just add a footnote when it signs a lease. It records two things on the balance sheet: a lease liability, which is the present value of the lease payments still owed (discounted at the incremental borrowing rate), and a right-of-use asset, which is the right to use the underlying asset for the lease term.
The ROU asset is not the equipment or the building. You do not own that, and the lessor still reports it. You are recording the right you paid for. At the start, the ROU asset usually equals the lease liability, adjusted for things like prepaid rent, initial direct costs and lease incentives. If you want to see how prepaid expenses are treated on their own, we cover that separately. For the full comparison of the two standards, read our guide on ASC 842 vs IFRS 16, which covers classification, discount rates and the low-value asset exemption that IFRS 16 has and ASC 842 does not.
So is a right-of-use asset current or non-current?
ASC 842-20-45-1 says ROU assets are subject to the same considerations as other nonfinancial assets when you classify them as current or noncurrent. Assets that get amortized or depreciated, like property and equipment or intangibles, are normally kept out of current assets under ASC 210. A ROU asset is amortized over the lease term, so it behaves the same way. Big 4 and mid-tier guides confirm that entities are not required to classify ROU assets as current, and in practice they show them as noncurrent assets.
The lease liability is different. It must be split. The part you expect to pay within the year (or operating cycle) is a current liability, and the rest is non-current. That is exactly the question my senior was really asking.
| Situation | ROU asset | Lease liability |
|---|---|---|
| Lease with more than 12 months left | Non-current | Split: principal due in the next 12 months is current, the rest is non-current |
| Final 12 months of the lease | Still shown in non-current assets in practice, since it is an amortizing asset | The whole remaining balance is current |
| Short-term lease, exemption elected | Not recorded | Not recorded, rent is expensed straight-line |
| Short-term lease extended beyond 12 months | Recognized from the date of the change | Recognized from the date of the change |
Worked example: a four-year equipment lease
Your company signs a four-year lease for warehouse equipment. Payments are $30,000 at the end of each year and the incremental borrowing rate is 6%. The present value of the payments gives an initial lease liability of about $103,953. For simplicity, assume there are no prepaid rent, direct costs or incentives, so the operating lease ROU asset starts at the same amount.
At the start, the entry is: debit right-of-use asset $103,953 and credit lease liability $103,953. After that, the balances look like this (rounded to whole dollars, so totals can differ by $1):
| Point in time | ROU asset (non-current) | Lease liability | Current portion | Non-current portion |
|---|---|---|---|---|
| Start | 103,953 | 103,953 | n/a | n/a |
| End of year 1 | 80,190 | 80,190 | 25,189 | 55,002 |
| End of year 2 | 55,002 | 55,002 | 26,700 | 28,302 |
| End of year 3 | 28,302 | 28,302 | 28,302 | 0 |
Look at the last row. Only 12 months remain, so the whole lease liability is current. The ROU asset is still shown under non-current assets, and no current portion is required for it. That contrast is the whole point of this article.
Is a right-of-use asset a fixed asset or an intangible asset?
So if you lease a building, an IFRS reporter may include the ROU asset within PP&E, while a US GAAP reporter usually keeps a separate "operating lease right-of-use asset" line. Whether it feels tangible or intangible depends on the underlying asset, not on the fact that it is a right. Many firms do track ROU assets next to the fixed asset register, but that is a tracking choice. For how genuine intangibles are handled, see our comparison of ASC 350-40 vs IAS 38 software costs.
Where the right-of-use asset appears on the balance sheet
Using the example above, here is the balance sheet at the end of year 1. Remember that ASC 842 does not allow finance lease and operating lease ROU assets to sit in the same line item, so they are shown separately or the lines are disclosed.
| Section | Line item | Amount ($) |
|---|---|---|
| Non-current assets | Operating lease right-of-use asset | 80,190 |
| Current liabilities | Current portion of operating lease liability | 25,189 |
| Non-current liabilities | Operating lease liability, net of current portion | 55,002 |
If you are building the full picture, our statement of financial position guide shows how these lines fit with everything else, including on a classified balance sheet.
The IFRS 16 view
IFRS 16 uses a single lessee model: almost every lease creates a ROU asset that is depreciated and a lease liability that carries interest. The ROU asset is presented separately, or within the same line item as the underlying asset would be if owned, and the lessee discloses which lines include it. The lease liability is split into current and non-current parts, like other liabilities. Two exemptions exist: short-term leases (12 months or less) and low-value assets. Since most IFRS reporters show ROU assets within non-current assets or PP&E, the classification result is the same as under US GAAP.
The short-term lease exemption, and when it stops applying
If a lease has a term of 12 months or less at the commencement date, and no purchase option you are reasonably certain to exercise, ASC 842 lets you skip recognition. The election is made by class of underlying asset. You record no ROU asset and no lease liability, and you expense the payments straight-line.
The trap is that the lease term includes any renewal you are reasonably certain to exercise. If the lease term later changes so the remaining term runs more than 12 months beyond the previously determined term, the lease no longer qualifies (ASC 842-20-25-3). You then apply the full lease model as if the date of the change were the commencement date. It is not applied backward. I have seen a month-to-month lease quietly turn into a three-year arrangement while everyone kept saying "it is just short-term", which is why lease tracking should never live only in a spreadsheet nobody reopens. We wrote about how small firms use AI agents for lease accounting under ASC 842 and IFRS 16 to catch these triggers early.
How this compares to other current asset questions
Questions like is inventory a current asset or is equipment a current asset turn on how quickly the asset will be sold or consumed. Inventory is current because it is expected to be sold. Equipment is non-current because it is used over many years. A ROU asset sits with equipment, because it is consumed gradually through amortization. What is unusual about leases is that the liability side moves between current and non-current as the lease runs down, and can reset if the terms change.
Common mistakes with this classification
Splitting the ROU asset instead of the lease liability. This is the most common one, and it was in the earlier version of this article. The current portion belongs to the liability. Do not reclassify the asset unless a specific policy or standard requires it.
Forgetting to update the current portion each period. The principal due in the next 12 months changes every reporting date, so the split has to be recalculated.
Missing modifications and renewals. A term extension, a payment change or extra space means the ROU asset and lease liability need remeasurement, which changes both the balances and the current portion. It is the same tracking problem we covered in fixed asset management for small firms: changes over time are harder than the first entry.
Mixing finance and operating lease lines. ASC 842 does not allow finance lease ROU assets and operating lease ROU assets in the same balance sheet line.
Treating the ROU asset as the leased equipment itself. You record the right to use it, not the asset. The classification comes from the lease accounting rules, not from the equipment's useful life.
Frequently asked questions
Is a right-of-use asset a current or noncurrent asset?
It is presented as a noncurrent asset. ASC 842 does not require a current portion for the ROU asset, while the lease liability must be split into current and non-current parts on a classified balance sheet.
Is a right-of-use asset a fixed asset?
Not exactly. It is a separate asset representing the right to use something you do not own. Under IFRS 16 it may be included in the PP&E line if not shown separately, and under ASC 842 it is normally presented as its own line.
Is a right-of-use asset tangible or intangible?
It follows the nature of the underlying asset under IFRS 16 presentation rules, so a leased building is treated like a tangible item. Lease accounting itself does not turn it into an intangible asset.
Where is the right-of-use asset on the balance sheet?
In non-current assets, usually as its own line such as "operating lease right-of-use asset", or within another line with the line item disclosed in the notes.
What is the difference between a ROU asset and a lease liability?
The ROU asset is your right to use the underlying asset for the lease term. The lease liability is the present value of the payments you still owe. They start at nearly the same amount but move differently afterwards, and only the liability is split into current and non-current.
What happens if a short-term lease is renewed?
If the lease term changes so the remaining term extends more than 12 months beyond the previous term, the lease is no longer short-term. You recognize a ROU asset and lease liability from the date of the change, measured as of that date.
The practical takeaway
Default to non-current for every ROU asset, and put your attention on the lease liability, where the current portion has to be recalculated each period. Watch renewals on anything you treated as short-term, keep finance and operating lines apart, and do not carry the rules for owned equipment straight over to a leased right. If you manage several leases across entities or frameworks, build a recurring check so that nobody has to remember it once a year.
Sources and further reading
- Deloitte Accounting Research Tool: Lessee presentation under ASC 842-20
- BDO: FASB Topic 842 presentation and disclosure
- Deloitte Accounting Research Tool: short-term lease recognition exemption
- Grant Thornton: IFRS 16 presentation and disclosure
- CLA: Last but not leased (classified balance sheet presentation)
About the Author
Written by a CA Finalist currently completing articleship at a Prime Global-affiliated chartered accountancy firm, with prior experience as a Tax Audit Associate. Content on this site is built from real audit and tax fieldwork, not just textbook definitions.
