The costs that (a) are associated directly with consummating a lease, (b) are essential to acquire the lease, and (c) would not have been incurred had the lease agreement not occurred, are referred to as initial direct costs. Initial direct costs incurred by the lessee are:
A) added to the right-of-use asset and expensed over an amortization period.
B) recorded as an expense at the beginning of the lease.
C) deferred in an operating lease until the asset is returned to the lessor.
D) a reduction to the lease liability at the beginning of the lease.

Question

Quizplus · Accepted Answer

Initial direct costs incurred by the lessee are added to the right-of-use asset and expensed over an amortization period. This is in accordance with the treatment prescribed by the accounting standards (ASC 842 and IFRS 16).

The Costs That (A) Are Associated Directly with Consummating a Lease