{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/842/980/#45-other-presentation-matters","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"842","topic_title":"Leases","subtopic":"842-980","subtopic_title":"Regulated Operations","section":{"number":"45","label":"45 Other Presentation Matters","anchor":"45-other-presentation-matters","is_sec":false,"groups":[{"block":null,"heading":"Treatment of Leases for Rate-Making Purposes","paragraphs":[{"citation":"842-980-45-1","para":"45-1","html":" Topic 842 specifies criteria for classification of leases and the method of accounting for each type of lease. For rate-making purposes, a lease may be treated as an operating lease even though the lease would be classified as a finance lease under those criteria. In effect, the amount of the lease payment is included in allowable costs as rental expense in the period it covers. For financial reporting purposes, the classification of the lease is not affected by the regulator's actions. The regulator cannot eliminate an obligation that was not imposed by the regulator (see paragraph 980-405-40-1). Also, by including the lease payments as allowable costs, the regulator sets rates that will provide revenue approximately equal to the combined amount of the right-of-use asset and interest on the lease liability over the term of the lease and, thus, provides reasonable assurance of the existence of an asset (see paragraph 980-340-25-1). Accordingly, regulated entities shall classify leases in accordance with Topic 842. The nature of the expense elements related to a finance lease (amortization of the right-of-use asset and interest on the lease liability) is not changed by the regulator's action; however, the timing of expense recognition related to the lease would be modified to conform to the rate treatment. Thus, amortization of the right-of-use asset shall be modified so that the total of interest on the lease liability and amortization of the right-of-use asset shall equal the lease expense that was allowed for rate-making purposes. For newly completed plants such regulatory treatment could result in a phase-in plan as defined in Subtopic 980-340. Paragraph 842-20-45-4 states that an entity is not required to classify the interest expense and amortization of the right-of-use asset in a finance lease as separate items in an income statement. For example, the amounts of amortization of the right-of-use asset and interest on the related lease liability could each be combined with other costs and presented in a manner consistent with how the entity presents depreciation or amortization of similar assets and other interest expense. However, the disclosure of total interest cost incurred, required by Subtopic 835-20, shall include the interest on that lease liability, and the disclosure of the total amortization of the entity's right-of-use assets arising under a finance lease and interest on finance lease liabilities, required by Section 842-20-50, shall include amortization of that right-of-use asset and interest on that lease liability.