What are the two accounting treatment options available to a lessee for contracts with lease and nonlease components?

The accounting treatment available to a lessee for contracts that include both lease and nonlease components is that they may choose to combine the two into one unit of account, or treat them separately. This flexibility allows for more tailored financial reporting based on the specifics of the agreement.

The correct treatment is to treat lease components separately from nonlease components in scenarios where the accounting guidance allows for it, which provides a clearer representation of the financial implications of the lease in question. This means that the lessee can identify and record the assets and liabilities associated with the lease separately from any associated nonlease obligations, offering more transparency and a better understanding of the financial situation.

The option that only the lease component is accounted for would limit the financial reporting and could omit significant liabilities or obligations that the lessee faces from nonlease components, which can impact operational assessments and financial analysis. Therefore, the accounting guidance allows for the more thorough approach of distinguishing between lease and nonlease components, which enhances the accuracy of financial statements and helps users of those statements make informed decisions.