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A reporting entity should consider the application of lease accounting in ASC 842 to all arrangements that meet the definition of a lease, as discussed in LG 2.3, with the exception of the following:
● Leases of intangible assets subject to ASC 350
● Leases to explore for or use minerals, oil, natural gas, and similar nonregenerative resources subject to the guidance contained in ASC 930 and ASC 932.
● Leases of biological assets (such as bearer plants and animals)
● Leases of inventory
● Leases of assets under construction
ASC 350 defines intangible assets as “assets (not including financial assets) that lack physical substance.” ASC 805-20-55-37 indicates that air use rights are an example of a contract-based intangible asset. Many arrangements that provide subsurface rights (i.e., rights to use space below the earth’s surface) are similar to air use rights. We believe rights to any spaces that cannot be inhabited or accessed by human beings, such as air rights or rights to construct a pipeline underground, lack physical substance and thus could be accounted for as intangible assets outside the scope of ASC 842.
The ASC 842 Glossary discusses the items subject to the leases of inventory exclusion.

Partial definition from ASC 842 Glossary

The term inventory embraces goods awaiting sale (the merchandise of a trading concern and the finished goods of a manufacturer), goods in the course of production (work in process), and goods to be consumed directly or indirectly in production (raw materials and supplies). This definition of inventories excludes long-term assets subject to depreciation accounting, or goods which, when put into use, will be so classified.

We believe the scope exclusion for leases related to exploration is limited, and should apply to circumstances in which the customer has the substantive ability to mine or explore the applicable area. The customer’s rights and substantive ability to explore and/or mine the site should be evaluated at contract inception, and upon reassessment triggers (see LG 5.3.1). For example, a site that was originally leased for mining purposes may “lose” its scope exclusion once mining on that site has ceased, even if the lessee extends the lease and continues to use the site in order to stage mining operations at nearby sites.

2.2.1 Short-term lease exemption for lessees

As discussed in ASC 842-20-25-2, a lessee may elect not to apply the recognition requirements of ASC 842 to short-term leases. This election should be made by class of underlying asset. If a lessee chooses to elect this short-term lease measurement and recognition exemption, it should recognize the lease payments in net income on a straight-line basis over the lease term. Variable lease payments should be recorded in the period in which the obligation for the payment is incurred.
The ASC 842 Glossary defines a short-term lease.

Definition from ASC 842 Glossary

Short-Term Lease: A lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

Leases often include options to either extend the term of the lease (commonly referred to as a renewal option) or to terminate the lease prior to the contractually defined lease expiration date (commonly referred to as a termination option). The existence of either a renewal or termination option requires lessees and lessors to determine, at lease commencement, the length of the lease term. As discussed in LG, renewal or termination options that are reasonably certain of exercise (or non-exercise) by the lessee are included in the lease term. Therefore, a one-year lease with a renewal option that the lessee is reasonably certain to exercise is not a short-term lease. See LG for information on determining the term of a lease.
A lessee should reassess whether a short-term lease continues to qualify for the short-term lease measurement and recognition exemption when certain events occur. See LG 5.4 for more information.

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