# ASC 842-10-15: Leases — Overall — 15 Scope and Scope Exceptions Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/842/10/#15-scope-and-scope-exceptions) 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. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:97629ca1bff3a98ac3aa7ad8f6811d18ebc2c50ff7b36a77d70467b4ddaf7cc0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-10-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/842/10/#15-scope-and-scope-exceptions) SEC content: no ##### [842-10-15-1](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:0faff5ddd094006d9f4daff92701452d7618ff922533edb93b8a9d6ab45a1acf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall apply this Topic to all [leases](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration."), including [subleases](https://asc.understandingaccounting.org/glossary/s/#sublease "A transaction in which an underlying asset is re-leased by the lessee (or intermediate lessor) to a third party (the sublessee) and the original (or head) lease between the lessor and the lessee remains in effect."). Because a lease is defined as a [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations."), or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration, this Topic does not apply to any of the following: 1. a Leases of intangible assets (see Topic 350, Intangibles—Goodwill and Other). 2. b Leases to explore for or use minerals, oil, natural gas, and similar nonregenerative resources (see Topics 930, Extractive Activities—Mining, and 932, Extractive Activities—Oil and Gas). This includes the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained (that is, unless those rights of use include more than the right to explore for natural resources), but not equipment used to explore for the natural resources. 3. c Leases of biological assets, including timber (see Topic 905, Agriculture). 4. d Leases of [inventory](https://asc.understandingaccounting.org/glossary/i/#inventory "The aggregate of those items of tangible personal property that have any of the following characteristics: Held for sale in the ordinary course of business In process of production for such sale To be currently consumed in the production of goods or services to be available for sale. 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. The fact that a depreciable asset is retired from regular use and held for sale does not indicate that the item should be classified as part of the inventory. Raw materials and supplies purchased for production may be used or consumed for the construction of long-term assets or other purposes not related to production, but the fact that inventory items representing a small portion of the total may not be absorbed ultimately in the production process does not require separate classification. By trade practice, operating materials and supplies of certain types of entities such as oil producers are usually treated as inventory.") (see Topic 330, Inventory). 5. e Leases of assets under construction (see Topic 360, Property, Plant, and Equipment). #### Identifying a Lease ##### [842-10-15-2](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:2655bcac913fd8d8d9252d2b78aee98eb85192a62ec76e8aac278e2ae34a71bd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At inception of a [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations."), an entity shall determine whether that contract is or contains a [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration."). ##### [842-10-15-3](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:02be858e42f05f11b5f26f19965e0548a3478329d64f96bad283368b7b4286c5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. A period of time may be described in terms of the amount of use of an identified asset (for example, the number of production units that an item of equipment will be used to produce). ##### [842-10-15-3A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-3A) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:17bc8460d4ddff286496daa8f1596ed86f8c88b0017efeefbfe2102d8427155b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As a practical expedient, an entity that is not a [public business entity](https://asc.understandingaccounting.org/glossary/p/#public-business-entity "A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing). It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market. It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion. An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity's filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC."); a [not-for-profit entity](https://asc.understandingaccounting.org/glossary/n/#not-for-profit-entity "An entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity: Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return Operating purposes other than to provide goods or services at a profit Absence of ownership interests like those of business entities. Entities that clearly fall outside this definition include the following: All investor-owned entities Entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives, and employee benefit plans.") that has issued or is a conduit bond obligor for securities that are traded, listed, or quoted on an exchange or an over-the-counter market; or an employee benefit plan that files or furnishes financial statements with or to the U.S. Securities and Exchange Commission may use the written terms and conditions of a related party arrangement between entities under common control to determine whether that arrangement is or contains a lease. For purposes of determining whether a lease exists under this practical expedient, an entity shall determine whether written terms and conditions convey the practical (as opposed to enforceable) right to control the use of an identified asset for a period of time in exchange for consideration. If an entity determines that a lease exists, the entity shall classify and account for that lease on the basis of those written terms and conditions. An entity may elect the practical expedient on an arrangement-by-arrangement basis. ##### [842-10-15-3B](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-3B) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:2d31966d54c9e9dbcc57e7f0b30b3b7947e9b5e75ab02ef39c69bf1ed3d45fa2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If no written terms or conditions exist, an entity shall not apply the practical expedient in paragraph [842-10-15-3A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-3A). Rather, the entity shall determine whether the related party arrangement between entities under common control is or contains a lease in accordance with paragraph [842-10-15-3](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-3) and, if so, classify and account for that lease on the basis of its legally enforceable terms and conditions in accordance with paragraph [842-10-55-12](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-12). ##### [842-10-15-3C](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-3C) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:5891d3e30108f641ea86d56ce237798234984fc67ad49fddf4888df5bb90eff2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If after an entity has applied the practical expedient in paragraph [842-10-15-3A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-3A) an arrangement is no longer between entities under common control, the entity shall determine whether a lease exists in accordance with paragraph [842-10-15-3](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-3). 1. a If the arrangement was previously determined to be a lease and continues to be a lease, the entity shall classify and account for the lease on the basis of the enforceable terms and conditions. If the enforceable terms and conditions differ from the written terms and conditions previously used to apply paragraph [842-10-15-3A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-3A), the entity shall apply the modification requirements in paragraphs [842-10-25-9 through 25-17](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-9) using the enforceable terms and conditions. If the enforceable terms and conditions are the same as the written terms and conditions previously used to apply paragraph [842-10-15-3A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-3A), the modification requirements in those paragraphs are not applicable. 2. b If the arrangement was previously not determined to be a lease and is determined to be a lease, the entity shall account for the arrangement as a new lease. 3. c If the arrangement was previously determined to be a lease and the lease ceases to exist: 1. 1 A [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.") shall apply the derecognition requirements for fully terminated leases in paragraph [842-20-40-1](https://asc.understandingaccounting.org/asc/842/20/#842-20-40-1). 2. 2 A [lessor](https://asc.understandingaccounting.org/glossary/l/#lessor "An entity that enters into a contract to provide the right to use an underlying asset for a period of time in exchange for consideration.") with a lease previously classified as a [sales-type lease](https://asc.understandingaccounting.org/glossary/s/#sales-type-lease "From the perspective of a lessor, a lease that meets one or more of the criteria in paragraph 842-10-25-2 and is not an operating lease in accordance with paragraph 842-10-25-3A.") or a [direct financing lease](https://asc.understandingaccounting.org/glossary/d/#direct-financing-leases "Glossary term superseded by Accounting Standards Update No. 2016-02.") shall apply the derecognition requirements for terminated leases in paragraph [842-30-40-2](https://asc.understandingaccounting.org/asc/842/30/#842-30-40-2). 3. 3 A lessor with a lease previously classified as an [operating lease](https://asc.understandingaccounting.org/glossary/o/#operating-lease "From the perspective of a lessee, any lease other than a finance lease. From the perspective of a lessor, any lease other than a sales-type lease or a direct financing lease.") shall derecognize any amounts that would not exist if the arrangement was not accounted for as a lease and account for the arrangement in accordance with other generally accepted accounting principles (GAAP). ##### [842-10-15-4](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:37a1f8c6c30d8697be6b229c2a94d066fc5cb5b27d1dd01f7be49751b5a4b569 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To determine whether a contract conveys the right to control the use of an identified asset (see paragraphs [842-10-15-17 through 15-26](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-17) ) for a period of time, an entity shall assess whether, throughout the [period of use](https://asc.understandingaccounting.org/glossary/p/#period-of-use "The total period of time that an asset is used to fulfill a contract with a customer (including the sum of any nonconsecutive periods of time)."), the customer has both of the following: 1. a The right to obtain substantially all of the economic benefits from use of the identified asset (see paragraphs [842-10-15-17 through 15-19](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-17) ) 2. b The right to direct the use of the identified asset (see paragraphs [842-10-15-20 through 15-26](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-20) ). If the customer in the contract is a joint operation or a joint arrangement, an entity shall consider whether the joint operation or joint arrangement has the right to control the use of an identified asset throughout the period of use. ##### [842-10-15-5](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:4acbd4da0c2cb06640fa134e525ce893eb8e9be9c5688da8853cf4e7554b6d27 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the customer has the right to control the use of an identified asset for only a portion of the term of the contract, the contract contains a lease for that portion of the term. ##### [842-10-15-6](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:2c0341d367c0302c986ebee6a71c7c4b36e7f7689c6f41dcf1a9338e242f2601 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall reassess whether a contract is or contains a lease only if the terms and conditions of the contract are changed. ##### [842-10-15-7](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:90adb358fb9ee6511a902d09ec6e252ed225ba134a932acbe836cc88f2edc521 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In making the determination about whether a contract is or contains a lease, an entity shall consider all relevant facts and circumstances. ##### [842-10-15-8](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:fbbc4f9c5ca663aea250d0ef93e9bcb469d9dbe5d52382e8bc877e56518f41b1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [842-10-55-1](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-1) includes a flowchart that depicts the decision process for evaluating whether a contract is or contains a lease. ##### [842-10-15-9](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:1b362d6c50573a322d58204e5fc0d9ec441424c5445dede30ff4e9c0250a3718 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An asset typically is identified by being explicitly specified in a [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations."). However, an asset also can be identified by being implicitly specified at the time that the asset is made available for use by the customer. ##### [842-10-15-10](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:6beb36effc0f23f84af58e878855f211905057570e8e41d5a2532256c0722bfe Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Even if an asset is specified, a customer does not have the right to use an identified asset if the supplier has the substantive right to substitute the asset throughout the period of use. A supplier's right to substitute an asset is substantive only if both of the following conditions exist: 1. a The supplier has the practical ability to substitute alternative assets throughout the period of use (for example, the customer cannot prevent the supplier from substituting an asset, and alternative assets are readily available to the supplier or could be sourced by the supplier within a reasonable period of time). 2. b The supplier would benefit economically from the exercise of its right to substitute the asset (that is, the economic benefits associated with substituting the asset are expected to exceed the costs associated with substituting the asset). ##### [842-10-15-11](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:75257df6f5932f6211a914075003e4f099bdcf2ab651a3eb88902d5954e5bba4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity's evaluation of whether a supplier's substitution right is substantive is based on facts and circumstances at inception of the contract and shall exclude consideration of future events that, at inception, are not considered likely to occur. Examples of future events that, at inception of the contract, would not be considered likely to occur and, thus, should be excluded from the evaluation include, but are not limited to, the following: 1. a An agreement by a future customer to pay an above-market rate for use of the asset 2. b The introduction of new technology that is not substantially developed at inception of the contract 3. c A substantial difference between the customer's use of the asset, or the performance of the asset and the use or performance considered likely at inception of the contract 4. d A substantial difference between the market price of the asset during the period of use and the market price considered likely at inception of the contract. ##### [842-10-15-12](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:77874c892a18ec0acdfb90c2084f4c7b1037b6d0b613843f3eb73c1a31657107 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the asset is located at the customer's premises or elsewhere, the costs associated with substitution are generally higher than when located at the supplier's premises and, therefore, are more likely to exceed the benefits associated with substituting the asset. ##### [842-10-15-13](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:b148eb4ae80dd9ad659a76546ba9a8c4f19e9fc8779319b4e0f6293c62acc635 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the supplier has a right or an obligation to substitute the asset only on or after either a particular date or the occurrence of a specified event, the supplier does not have the practical ability to substitute alternative assets throughout the period of use. ##### [842-10-15-14](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:3ef1c42ee6323d21cd50aa59535758993a31aa3ae364c3abeb61a6ed9aee0d5a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The supplier's right or obligation to substitute an asset for repairs or maintenance, if the asset is not operating properly, or if a technical upgrade becomes available, does not preclude the customer from having the right to use an identified asset. ##### [842-10-15-15](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:9249c38d19559cef1f1637d99871bb9f503c90df38ac3ea9d96e736a883dc7f2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the customer cannot readily determine whether the supplier has a substantive substitution right, the customer shall presume that any substitution right is not substantive. ##### [842-10-15-16](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:f4f6751267e1c8a46e729f4630ecc1915fccf804e8712dc42b71e6baf42962a7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A capacity portion of an asset is an identified asset if it is physically distinct (for example, a floor of a building or a segment of a pipeline that connects a single customer to the larger pipeline). A capacity or other portion of an asset that is not physically distinct (for example, a capacity portion of a fiber optic cable) is not an identified asset, unless it represents substantially all of the capacity of the asset and thereby provides the customer with the right to obtain substantially all of the economic benefits from use of the asset. ##### [842-10-15-17](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:701a6ff2b7ab770e532ed2c558e39b7397c55104bc9eea57df229d2ca9c6cdc9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To control the use of an identified asset, a customer is required to have the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use (for example, by having exclusive use of the asset throughout that period). A customer can obtain economic benefits from use of an asset directly or indirectly in many ways, such as by using, holding, or subleasing the asset. The economic benefits from use of an asset include its primary output and by-products (including potential cash flows derived from these items) and other economic benefits from using the asset that could be realized from a commercial transaction with a third party. ##### [842-10-15-18](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:7b9e0647b8f0b9fefcb882e832701cdb2576c432146fc4f9ada88e23cdba63a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When assessing the right to obtain substantially all of the economic benefits from use of an asset, an entity shall consider the economic benefits that result from use of the asset within the defined scope of a customer's right to use the asset in the contract (see paragraph [842-10-15-23](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-23)). For example: 1. a If a contract limits the use of a motor vehicle to only one particular territory during the period of use, an entity shall consider only the economic benefits from use of the motor vehicle within that territory and not beyond. 2. b If a contract specifies that a customer can drive a motor vehicle only up to a particular number of miles during the period of use, an entity shall consider only the economic benefits from use of the motor vehicle for the permitted mileage and not beyond. ##### [842-10-15-19](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:455cc8fc65e842c975abc7f9757649a7d396e1209451d86c560b5adc629b6049 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a contract requires a customer to pay the supplier or another party a portion of the cash flows derived from use of an asset as consideration, those cash flows paid as consideration shall be considered to be part of the economic benefits that the customer obtains from use of the asset. For example, if a customer is required to pay the supplier a percentage of sales from use of retail space as consideration for that use, that requirement does not prevent the customer from having the right to obtain substantially all of the economic benefits from use of the retail space. That is because the cash flows arising from those sales are considered to be economic benefits that the customer obtains from use of the retail space, a portion of which it then pays to the supplier as consideration for the right to use that space. ##### [842-10-15-20](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:e3f332e72e4fca73dd7fb43c9a57c8951a88b78178901c74f50f11b4218dbd4f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A customer has the right to direct the use of an identified asset throughout the period of use in either of the following situations: 1. a The customer has the right to direct how and for what purpose the asset is used throughout the period of use (as described in paragraphs [842-10-15-24 through 15-26](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-24) ). 2. b The relevant decisions about how and for what purpose the asset is used are predetermined (see paragraph [842-10-15-21](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-21)) and at least one of the following conditions exists: 1. 1 The customer has the right to operate the asset (or to direct others to operate the asset in a manner that it determines) throughout the period of use without the supplier having the right to change those operating instructions. 2. 2 The customer designed the asset (or specific aspects of the asset) in a way that predetermines how and for what purpose the asset will be used throughout the period of use. ##### [842-10-15-21](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-21) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:ee59886a1739fe75c98997c77782bed0f13e5ad8606c0aae290321b0e2a6640f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The relevant decisions about how and for what purpose an asset is used can be predetermined in a number of ways. For example, the relevant decisions can be predetermined by the design of the asset or by contractual restrictions on the use of the asset. ##### [842-10-15-22](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-22) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:398051d8bfdcd980ac2c41ba6c471e3a2ea065a3240a9ac0e99b3e2e378e67ce Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In assessing whether a customer has the right to direct the use of an asset, an entity shall consider only rights to make decisions about the use of the asset during the period of use unless the customer designed the asset (or specific aspects of the asset) in accordance with paragraph [842-10-15-20(b)(2)](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-20). Consequently, unless that condition exists, an entity shall not consider decisions that are predetermined before the period of use. For example, if a customer is able only to specify the output of an asset before the period of use, the customer does not have the right to direct the use of that asset. The ability to specify the output in a contract before the period of use, without any other decision-making rights relating to the use of the asset, gives a customer the same rights as any customer that purchases goods or services. ##### [842-10-15-23](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-23) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:61d8ec54985154d1c1b2db0e6dfd3a00c284923ab05c2e0d661472d821e90648 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A contract may include terms and conditions designed to protect the supplier's interest in the asset or other assets, to protect its personnel, or to ensure the supplier's compliance with laws or regulations. These are examples of protective rights. For example, a contract may specify the maximum amount of use of an asset or limit where or when the customer can use the asset, may require a customer to follow particular operating practices, or may require a customer to inform the supplier of changes in how an asset will be used. Protective rights typically define the scope of the customer's right of use but do not, in isolation, prevent the customer from having the right to direct the use of an asset. ##### [842-10-15-24](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-24) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:9217c51274e3df114685a9f308ef381afa28cb989c5876cc908850ddb6cc557b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A customer has the right to direct how and for what purpose an asset is used throughout the period of use if, within the scope of its right of use defined in the contract, it can change how and for what purpose the asset is used throughout that period. In making this assessment, an entity considers the decision-making rights that are most relevant to changing how and for what purpose an asset is used throughout the period of use. Decision-making rights are relevant when they affect the economic benefits to be derived from use. The decision-making rights that are most relevant are likely to be different for different contracts, depending on the nature of the asset and the terms and conditions of the contract. ##### [842-10-15-25](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-25) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:2fa469442255604305941e02520d16833e68116c9cb23a80f9f761bf4f1598b2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples of decision-making rights that, depending on the circumstances, grant the right to direct how and for what purpose an asset is used, within the defined scope of the customer's right of use, include the following: 1. a The right to change the type of output that is produced by the asset (for example, deciding whether to use a shipping container to transport goods or for storage, or deciding on the mix of products sold from a retail unit) 2. b The right to change when the output is produced (for example, deciding when an item of machinery or a power plant will be used) 3. c The right to change where the output is produced (for example, deciding on the destination of a truck or a ship or deciding where a piece of equipment is used or deployed) 4. d The right to change whether the output is produced and the quantity of that output (for example, deciding whether to produce energy from a power plant and how much energy to produce from that power plant). ##### [842-10-15-26](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-26) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:ed2c7d32efffc65da9af5496f5232a43f2083996d92c9bd04004a634d69cc749 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples of decision-making rights that do not grant the right to direct how and for what purpose an asset is used include rights that are limited to operating or maintaining the asset. Although rights such as those to operate or maintain an asset often are essential to the efficient use of an asset, they are not rights to direct how and for what purpose the asset is used and often are dependent on the decisions about how and for what purpose the asset is used. Such rights (that is, to operate or maintain the asset) can be held by the customer or the supplier. The supplier often holds those rights to protect its investment in the asset. However, rights to operate an asset may grant the customer the right to direct the use of the asset if the relevant decisions about how and for what purpose the asset is used are predetermined (see paragraph [842-10-15-20(b)(1))](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-20). ##### [842-10-15-27](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-27) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:bf4da023c20b6c5930798b95cffeda808944e5a4d0ff8f070d0b35f9c2058a87 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Examples 1 through 10 (paragraphs [842-10-55-41 through 55-130](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-41) ) for illustrations of the requirements for identifying a lease. #### Separating Components of a Contract ##### [842-10-15-28](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-28) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:39bf3fee52e1bf76947c6b10be6243f7be8d6b847ff14806d9c87ad2b1a922b7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. After determining that a [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") contains a [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") in accordance with paragraphs [842-10-15-2 through 15-27](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-2) , an entity shall identify the separate lease components within the contract. An entity shall consider the right to use an [underlying asset](https://asc.understandingaccounting.org/glossary/u/#underlying-asset "An asset that is the subject of a lease for which a right to use that asset has been conveyed to a lessee. The underlying asset could be a physically distinct portion of a single asset.") to be a separate lease component (that is, separate from any other lease components of the contract) if both of the following criteria are met: 1. a The [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.") can benefit from the right of use either on its own or together with other resources that are readily available to the lessee. Readily available resources are goods or services that are sold or leased separately (by the [lessor](https://asc.understandingaccounting.org/glossary/l/#lessor "An entity that enters into a contract to provide the right to use an underlying asset for a period of time in exchange for consideration.") or other suppliers) or resources that the lessee already has obtained (from the lessor or from other transactions or events). 2. b The right of use is neither highly dependent on nor highly interrelated with the other right(s) to use underlying assets in the contract. A lessee's right to use an underlying asset is highly dependent on or highly interrelated with another right to use an underlying asset if each right of use significantly affects the other. ##### [842-10-15-29](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-29) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:dbaa7f7f0e0abf9df1f44fbac078469279c140d6615c18774dfe73904db29db3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in paragraph [842-10-15-28](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-28) notwithstanding, to classify and account for a lease of land and other assets, an entity shall account for the right to use land as a separate lease component unless the accounting effect of doing so would be insignificant (for example, separating the land element would have no effect on lease classification of any lease component or the amount recognized for the land lease component would be insignificant). ##### [842-10-15-30](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-30) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:ad9cc1ae311eb740fa7abbe805e1cd6b2344baea15fdfd5ebc4889556752d226 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The [consideration in the contract](https://asc.understandingaccounting.org/glossary/c/#consideration-in-the-contract "See paragraph 842-10-15-35 for what constitutes the consideration in the contract for lessees and paragraph 842-10-15-39 for what constitutes consideration in the contract for lessors.") shall be allocated to each separate lease component and nonlease component of the contract (see paragraphs [842-10-15-33 through 15-37](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-33) for lessee allocation guidance and paragraphs [842-10-15-38 through 15-42C](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-38) for lessor allocation guidance). Components of a contract include only those items or activities that transfer a good or service to the lessee. Consequently, the following are not components of a contract and do not receive an allocation of the consideration in the contract: 1. a Administrative tasks to set up a contract or initiate the lease that do not transfer a good or service to the lessee 2. b Reimbursement or payment of the lessor's costs. For example, a lessor may incur various costs in its role as a lessor or as owner of the underlying asset. A requirement for the lessee to pay those costs, whether directly to a third party or as a reimbursement to the lessor, does not transfer a good or service to the lessee separate from the right to use the underlying asset. ##### [842-10-15-31](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-31) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:35af5c79c457d1b861d69f8d8d2110ced059be73ea78e86db034d3d87293571f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall account for each separate lease component separately from the nonlease components of the contract (that is, unless a lessee makes the accounting policy election described in paragraph [842-10-15-37](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-37)or unless a lessor makes the accounting policy election in accordance with paragraph [842-10-15-42A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-42A)). Nonlease components are not within the scope of this Topic and shall be accounted for in accordance with other Topics. ##### [842-10-15-32](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-32) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:0978cc157b67de2e0b8a9cfd80e5281d46b0849f4d42a165eaf73272357f67fb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Examples 11 through 14 (paragraphs [842-10-55-131 through 55-158](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-131) ) for illustrations of the requirements for allocating consideration to components of a contract. ##### [842-10-15-33](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-33) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:62f01bdb2c97632468bcf4889d96793924c34c3b4a483cdaf97bfe1655c66fc5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.") shall allocate (that is, unless the lessee makes the accounting policy election described in paragraph [842-10-15-37](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-37)) the [consideration in the contract](https://asc.understandingaccounting.org/glossary/c/#consideration-in-the-contract "See paragraph 842-10-15-35 for what constitutes the consideration in the contract for lessees and paragraph 842-10-15-39 for what constitutes consideration in the contract for lessors.") to the separate [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") components determined in accordance with paragraphs [842-10-15-28 through 15-31](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-28) and the nonlease components as follows: 1. a The lessee shall determine the relative [standalone price](https://asc.understandingaccounting.org/glossary/s/#standalone-price "The price at which a customer would purchase a component of a contract separately.") of the separate lease components and the nonlease components on the basis of their observable standalone prices. If observable standalone prices are not readily available, the lessee shall estimate the standalone prices, maximizing the use of observable information. A residual estimation approach may be appropriate if the standalone price for a component is highly variable or uncertain. 2. b The lessee shall allocate the consideration in the contract on a relative standalone price basis to the separate lease components and the nonlease components of the [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations."). [Initial direct costs](https://asc.understandingaccounting.org/glossary/i/#initial-direct-costs "Incremental costs of a lease that would not have been incurred if the lease had not been obtained.") should be allocated to the separate lease components on the same basis as the [lease payments](https://asc.understandingaccounting.org/glossary/l/#lease-payments "See paragraph 842-10-30-5 for what constitutes lease payments from the perspective of a lessee and a lessor."). ##### [842-10-15-34](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-34) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:2e98b4c39ba824c081f891360c3f7d30743fdea570af6fe10ccb5b541eef522a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A price is observable if it is the price that either the [lessor](https://asc.understandingaccounting.org/glossary/l/#lessor "An entity that enters into a contract to provide the right to use an underlying asset for a period of time in exchange for consideration.") or similar suppliers sell similar lease or nonlease components on a standalone basis. ##### [842-10-15-35](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-35) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:82322cf3ad7a6655135729802da74f4599a68f05bb2b0ee928776911f415a08c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The consideration in the contract for a lessee includes all of the payments described in paragraph [842-10-30-5](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-5), as well as all of the following payments that will be made during the [lease term](https://asc.understandingaccounting.org/glossary/l/#lease-term "The noncancellable period for which a lessee has the right to use an underlying asset, together with all of the following: Periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option Periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option Periods covered by an option to extend (or not to terminate) the lease in which exercise of the option is controlled by the lessor."): 1. a Any fixed payments (for example, monthly service charges) or in substance fixed payments, less any incentives paid or payable to the lessee, other than those included in paragraph [842-10-30-5](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-5) 2. b Any other variable payments that depend on an index or a rate, initially measured using the index or rate at the [commencement date](https://asc.understandingaccounting.org/glossary/c/#commencement-date-of-the-lease-commencement-date "The date on which a lessor makes an underlying asset available for use by a lessee. See paragraphs 842-10-55-19842-10-55-20842-10-55-21 for implementation guidance on the commencement date."). ##### [842-10-15-36](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-36) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:a5ed69b6824c98b12ca0a95c99be40e73f5fa48746c9c52653e8f0b199404865 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A lessee shall remeasure and reallocate the consideration in the contract upon either of the following: 1. a A remeasurement of the [lease liability](https://asc.understandingaccounting.org/glossary/l/#lease-liability "A lessee's obligation to make the lease payments arising from a lease, measured on a discounted basis.") (for example, a remeasurement resulting from a change in the lease term or a change in the assessment of whether a lessee is or is not reasonably certain to exercise an option to purchase the [underlying asset](https://asc.understandingaccounting.org/glossary/u/#underlying-asset "An asset that is the subject of a lease for which a right to use that asset has been conveyed to a lessee. The underlying asset could be a physically distinct portion of a single asset.")) (see paragraph [842-20-35-4](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-4)) 2. b The effective date of a contract modification that is not accounted for as a separate contract (see paragraph [842-10-25-8](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-8)). ##### [842-10-15-37](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-37) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:9e563f92e43a1d27c37ecca9561d05a736765bef7fb6febdac1fd938da7e2f1a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As a practical expedient, a lessee may, as an accounting policy election by class of underlying asset, choose not to separate nonlease components from lease components and instead to account for each separate lease component and the nonlease components associated with that lease component as a single lease component. ##### [842-10-15-38](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-38) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:76c11d636cf7b8bf7899277415cdd19fa9f8d8a3604d758fa1790ad7af33c09f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A [lessor](https://asc.understandingaccounting.org/glossary/l/#lessor "An entity that enters into a contract to provide the right to use an underlying asset for a period of time in exchange for consideration.") shall allocate (unless the lessor makes the accounting policy election in accordance with paragraph [842-10-15-42A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-42A)) the [consideration in the contract](https://asc.understandingaccounting.org/glossary/c/#consideration-in-the-contract "See paragraph 842-10-15-35 for what constitutes the consideration in the contract for lessees and paragraph 842-10-15-39 for what constitutes consideration in the contract for lessors.") to the separate [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") components and the nonlease components using the requirements in paragraphs [606-10-32-28 through 32-41](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-28) . A lessor also shall allocate (unless the lessor makes the accounting policy election in accordance with paragraph [842-10-15-42A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-42A)) any capitalized costs (for example, [initial direct costs](https://asc.understandingaccounting.org/glossary/i/#initial-direct-costs "Incremental costs of a lease that would not have been incurred if the lease had not been obtained.") or [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") costs capitalized in accordance with Subtopic 340-40 on other assets and deferred costs—contracts with customers) to the separate lease components or nonlease components to which those costs relate. ##### [842-10-15-39](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-39) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:0c300df4b4a8a2977e7bdd2a98d6fe77d3142e1383677206a54b77d98b169cf9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The consideration in the contract for a lessor includes all of the amounts described in paragraph [842-10-15-35](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-35) and any other variable payment amounts that would be included in the transaction price in accordance with the guidance on variable consideration in Topic 606 on revenue from contracts with customers that specifically relates to either of the following: 1. a The lessor's efforts to transfer one or more goods or services that are not leases 2. b An outcome from transferring one or more goods or services that are not leases. Any variable payment amounts accounted for as consideration in the contract shall be allocated entirely to the nonlease component(s) to which the variable payment specifically relates if doing so would be consistent with the transaction price allocation objective in paragraph [606-10-32-28](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-28). ##### [842-10-15-39A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-39A) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:4076b2d5bf934259b3f2027559d228ebc7d3eafb2031474c4554fd3f7d9022c2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A lessor may make an accounting policy election to exclude from the consideration in the contract and from variable payments not included in the consideration in the contract all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific lease revenue-producing transaction and collected by the lessor from a lessee (for example, sales, use, value added, and some excise taxes). Taxes assessed on a lessor's total gross receipts or on the lessor as owner of the underlying asset shall be excluded from the scope of this election. A lessor that makes this election shall exclude from the consideration in the contract and from variable payments not included in the consideration in the contract all taxes within the scope of the election and shall comply with the disclosure requirements in paragraph [842-30-50-14](https://asc.understandingaccounting.org/asc/842/30/#842-30-50-14). ##### [842-10-15-40](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-40) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:ac859163da9f1d59f5778639555be7c025a4926727537aa27276d357a235990f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the terms of a variable payment amount other than those in paragraph [842-10-15-35](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-35) relate to a lease component, even partially, the lessor shall not recognize those payments before the changes in facts and circumstances on which the variable payment is based occur (for example, when the [lessee's](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.") sales on which the amount of the variable payment depends occur). When the changes in facts and circumstances on which the variable payment is based occur, the lessor shall allocate those payments to the lease and nonlease components of the contract. The allocation shall be on the same basis as the initial allocation of the consideration in the contract or the most recent modification not accounted for as a separate contract unless the variable payment meets the criteria in paragraph [606-10-32-40](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-40) to be allocated only to the lease component(s). Variable payment amounts allocated to the lease component(s) shall be recognized as income in profit or loss in accordance with this Topic, while variable payment amounts allocated to nonlease component(s) shall be recognized in accordance with other Topics (for example, Topic 606 on revenue from contracts with customers). ##### [842-10-15-40A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-40A) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:88b30a21662845e5aa7e011823d83429118a86c77659e68a0ecdce5daa5af31c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in paragraph [842-10-15-40](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-40) notwithstanding, a lessor shall exclude from variable payments lessor costs paid by a lessee directly to a third party. However, costs excluded from the consideration in the contract that are paid by a lessor directly to a third party and are reimbursed by a lessee are considered lessor costs that shall be accounted for by the lessor as variable payments (this requirement does not preclude a lessor from making the accounting policy election in paragraph [842-10-15-39A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-39A)). ##### [842-10-15-41](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-41) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:c2dd440b893411a5097aa2fa9ad69d2b8484b2589b48e9cff0792f37c8c520d8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A lessor shall remeasure and reallocate the remaining consideration in the contract when there is a contract modification that is not accounted for as a separate contract in accordance with paragraph [842-10-25-8](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-8). ##### [842-10-15-42](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-42) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:766281c4cbe4c874b50e657c2631553aa22f966f0b4228df3aff905a96829f15 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the consideration in the contract changes, a lessor shall allocate those changes in accordance with the requirements in paragraphs [606-10-32-42 through 32-45](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-42) . ##### [842-10-15-42A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-42A) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:e539b07edcade74ff2ab2150e25a8c3735ae941701635c90bd9f1cd84aa92d1c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As a practical expedient, a lessor may, as an accounting policy election, by class of underlying asset, choose to not separate nonlease components from lease components and, instead, to account for each separate lease component and the nonlease components associated with that lease component as a single component if the nonlease components otherwise would be accounted for under Topic 606 on revenue from contracts with customers and both of the following are met: 1. a The timing and pattern of transfer for the lease component and nonlease components associated with that lease component are the same. 2. b The lease component, if accounted for separately, would be classified as an operating lease in accordance with paragraphs [842-10-25-2 through 25-3A](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2). ##### [842-10-15-42B](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-42B) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:eb334fe3ff0f96b5c51fb2c3802a93a43ced213d5159cafab7f47effe5c9677d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A lessor that elects the practical expedient in paragraph [842-10-15-42A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-42A) shall account for the combined component: 1. a As a single performance obligation entirely in accordance with Topic 606 if the nonlease component or components are the predominant component(s) of the combined component. In applying Topic 606, the entity shall do both of the following: 1. 1 Use the same measure of progress as used for applying paragraph [842-10-15-42A(a)](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-42A) 2. 2 Account for all variable payments related to any good or service, including the lease, that is part of the combined component in accordance with the guidance on variable consideration in Topic 606. 2. b Otherwise, as an operating lease entirely in accordance with this Topic. In applying this Topic, the entity shall account for all variable payments related to any good or service that is part of the combined component as variable lease payments. In determining whether a nonlease component or components are the predominant component(s) of a combined component, a lessor shall consider whether the lessee would be reasonably expected to ascribe more value to the nonlease component(s) than to the lease component. ##### [842-10-15-42C](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-42C) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:75f5a81d9ddebad19fd6255275a6ec317331f2d14a7924257541e08f4f144b77 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A lessor that elects the practical expedient in paragraph [842-10-15-42A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-42A) shall combine all nonlease components that qualify for the practical expedient with the associated lease component and shall account for the combined component in accordance with paragraph [842-10-15-42B](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-42B). A lessor shall separately account for nonlease components that do not qualify for the practical expedient. Accordingly, a lessor shall apply paragraphs [842-10-15-38 through 15-42](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-38) to account for nonlease components that do not qualify for the practical expedient. #### Other Considerations ##### [842-10-15-43](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-43) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:52.887Z to 2026-09-10T01:55:52.887Z Record version: sha256:846e2c97f547f4f4de3a3933fc993c9a40d1f363c884378e5a6827d2548a530c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [815-10-15-79](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-79) explains that [leases](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") that are within the scope of this Topic are not derivative instruments subject to Subtopic 815-10 on derivatives and hedging although a derivative instrument embedded in a lease may be subject to the requirements of Section 815-15-25. Paragraph [815-10-15-80](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-80) explains that [residual value guarantees](https://asc.understandingaccounting.org/glossary/r/#residual-value-guarantee "A guarantee made to a lessor that the value of an underlying asset returned to the lessor at the end of a lease will be at least a specified amount.") that are subject to the guidance in this Topic are not subject to the guidance in Subtopic 815-10. Paragraph [815-10-15-81](https://asc.understandingaccounting.org/asc/815/10/#815-10-15-81) requires that a third-party residual value guarantor consider the guidance in Subtopic 815-10 for all residual value guarantees that it provides to determine whether they are derivative instruments and whether they qualify for any of the scope exceptions in that Subtopic.