As noted in LG 4.4.2, the amortization of an operating lease right-of-use asset generally increases over the lease term. As a result, throughout the lease term, the net book value of a right-of-use asset resulting from an operating lease is typically greater than it would have been had the lease been classified as a finance lease. Because of this higher value, a right-of-use asset arising from an operating lease may have a higher risk of impairment. Refer to PPE 5.2.7 for right-of-use asset impairment considerations. 

If there is an impairment charge for a right-of-use asset associated with an operating lease, it would not impact the value of the recorded lease liability absent a modification to the lease terms or a reassessment of options to renew. As discussed in LG 5.3.1, an impairment resulting from market-based factors that are not within the lessee’s control is not, in itself, a trigger for the lessee to reassess the lease term or an option to purchase the underlying asset.

Once the right-of-use asset for an operating lease is impaired, lease expense will no longer be recognized on a straight-line basis. A lessee should continue to amortize the lease liability using the same effective interest method as before the impairment charge. The right-of-use asset, however, should be subsequently amortized on a straight-line basis. The resulting accounting is similar to the accounting a lessee would apply to a finance lease (see LG 4.4.1), however, the lease is still classified as an operating lease, and a lessee should continue to follow operating lease presentation and disclosure guidance.