# ASC 842-10-25: Leases — Overall — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/842/10/#25-recognition) 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): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:66884183a995c2a408cb2c7c2efd7589e654b2161de85c08b275c751e1a8861b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-10-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/842/10/#25-recognition) SEC content: no #### Lease Classification ##### [842-10-25-1](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:ec314695ab3d9cff96e426dd840e004d3fb73d2210cb32079bb1e719fe06229f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall classify each 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.") component 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."). An entity shall not reassess the lease classification after the commencement date unless the [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") is modified and the modification 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). In addition, 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.") also shall reassess the lease classification after the commencement date if there is a change in 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.") or the assessment of whether the lessee is 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."). When an entity (that is, a lessee or lessor) is required to reassess lease classification, the entity shall reassess classification of the lease on the basis of the facts and circumstances (and the modified terms and conditions, if applicable) as of the date the reassessment is required (for example, on the basis of the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") and the remaining economic life of the underlying asset as of the date there is a change in the lease term or in the assessment of a lessee option to purchase the underlying asset or as of the effective date of a modification 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)). ##### [842-10-25-2](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:27547d3a98003f6e1370324bcc6f1cb3dfcc191dd45d3e52afc64d8952a765f9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A lessee shall classify a lease as a [finance lease](https://asc.understandingaccounting.org/glossary/f/#finance-lease "From the perspective of a lessee, a lease that meets one or more of the criteria in paragraph 842-10-25-2.") and 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 classify a lease 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.") when the lease meets any of the following criteria at lease commencement: 1. a The lease transfers ownership of the underlying asset to the lessee by the end of the lease term. 2. b The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise. 3. c The lease term is for the major part of the remaining economic life of the underlying asset. However, if the commencement date falls at or near the end of the economic life of the underlying asset, this criterion shall not be used for purposes of classifying the lease. 4. d The present value of the sum of 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.") and any residual value guaranteed by the lessee that is not already reflected in the lease payments in accordance with paragraph [842-10-30-5(f)](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-5) equals or exceeds substantially all of the fair value of the underlying asset. 5. e The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. ##### [842-10-25-3](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:68ea2847ce11a7ad0a9dc6bd9da6d8670ff4d8cc76eaddd18b29c4499e24d3e9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When none of the criteria in paragraph [842-10-25-2](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2) are met: 1. a A lessee shall classify the lease 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."). 2. b A lessor shall classify the lease as either a [direct financing lease](https://asc.understandingaccounting.org/glossary/d/#direct-financing-lease "From the perspective of a lessor, a lease that meets none of the criteria in paragraph 842-10-25-2 but meets the criteria in paragraph 842-10-25-3(b)and is not an operating lease in accordance with paragraph 842-10-25-3A.") or an operating lease. A lessor shall classify the lease as an operating lease unless both of the following criteria are met, in which case the lessor shall classify the lease as a direct financing lease: 1. 1 The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments in accordance with paragraph [842-10-30-5(f)](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-5) and/or any other third party unrelated to the lessor equals or exceeds substantially all of the fair value of the underlying asset. 2. 2 It is [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") that the lessor will collect the lease payments plus any amount necessary to satisfy a [residual value guarantee](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."). ##### [842-10-25-3A](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-3A) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:220f18921ae600510d03de087d56cffbec4a1126d51880b0644f37b0a0c12777 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Notwithstanding the requirements in paragraphs [842-10-25-2 through 25-3](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2) , a lessor shall classify a lease with [variable lease payments](https://asc.understandingaccounting.org/glossary/v/#variable-lease-payments "Payments made by a lessee to a lessor for the right to use an underlying asset that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time.") that do not depend on an index or a rate as an operating lease at lease commencement if classifying the lease as a sales-type lease or a direct financing lease would result in the recognition of a [selling loss](https://asc.understandingaccounting.org/glossary/s/#selling-profit-or-selling-loss "At the commencement date, selling profit or selling loss equals: The fair value of the underlying asset or the sum of (1) the lease receivable and (2) any lease payments prepaid by the lessee, if lower; minus The carrying amount of the underlying asset net of any unguaranteed residual asset; minus Any deferred initial direct costs of the lessor."). ##### [842-10-25-4](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:e921e74507686e89401185f42adec77e29e6738a3d0a3c433e71e5a3fbb16f59 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A lessor shall assess the criteria in paragraphs [842-10-25-2(d)](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2) and [842-10-25-3(b)(1)](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-3) using the [rate implicit in the lease](https://asc.understandingaccounting.org/glossary/r/#rate-implicit-in-the-lease "The rate of interest that, at a given date, causes the aggregate present value of (a) the lease paymentsand (b) the amount that a lessor expects to derive from the underlying asset following the end of the lease termto equal the sum of (1) the fair value of the underlying asset minus any related investment tax credit retained and expected to be realized by the lessor and (2) any deferred initial direct costs of the lessor. However, if the rate determined in accordance with the preceding sentence is less than zero, a rate implicit in the lease of zero shall be used."). For purposes of assessing the criterion in paragraph [842-10-25-2(d)](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2), a lessor shall assume that no [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.") will be deferred if, at the commencement date, the fair value of the underlying asset is different from its carrying amount. ##### [842-10-25-5](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:e182e3a326d858058ce4b0cbb3d8e3a64518d42e4269f07d5a49a4c45e9dd0e2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a single lease component contains the right to use more than one underlying asset (see paragraphs [842-10-15-28 through 15-29](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-28) ), an entity shall consider the remaining economic life of the predominant asset in the lease component for purposes of applying the criterion in paragraph [842-10-25-2(c)](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2). ##### [842-10-25-6](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:7d80dd71f1a49cc9be99d0210e57e18ad04196c7b59960aee65ef00ec8dab7b1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When classifying a [sublease](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."), an entity shall classify the sublease with reference to the underlying asset (for example, the item of property, plant, or equipment that is the subject of the lease) rather than with reference to the [right-of-use asset](https://asc.understandingaccounting.org/glossary/r/#right-of-use-asset "An asset that represents a lessee's right to use an underlying asset for the lease term."). ##### [842-10-25-7](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:be6a23d7494b0aee180183876b3ab76ad33f3c2c33dec423f191f13beb08b772 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraphs [842-10-55-2 through 55-15](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-2) for implementation guidance on lease classification. #### Lease Modifications ##### [842-10-25-8](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:751b86a60ff17495f4d6afc3800c28fb6e5970d511f2885e3d3e2878c701054c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall account for a modification to a [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") as a separate contract (that is, separate from the original contract) when both of the following conditions are present: 1. a The modification grants 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.") an additional right of use not included in the original [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.") (for example, the right to use an additional asset). 2. b 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.") increase commensurate with the [standalone price](https://asc.understandingaccounting.org/glossary/s/#standalone-price "The price at which a customer would purchase a component of a contract separately.") for the additional right of use, adjusted for the circumstances of the particular contract. For example, the standalone price for the lease of one floor of an office building in which the lessee already leases other floors in that building may be different from the standalone price of a similar floor in a different office building, because it was not necessary for 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.") to incur costs that it would have incurred for a new lessee. ##### [842-10-25-9](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:8997445c4c98931af47045deda83867e9358c212200fad2158e9dc19a7677d5f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a lease is modified and that modification 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), the entity shall reassess the classification of the lease in accordance with paragraph [842-10-25-1](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-1) as of the [effective date of the modification](https://asc.understandingaccounting.org/glossary/e/#effective-date-of-the-modification "The date that a lease modification is approved by both the lessee and the lessor."). ##### [842-10-25-10](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:62192d766182299c08ee908f81f3af2b8bbee075f1c39e2d654a75cf06d214ba Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall account for [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."), lease incentives, and any other payments made to or by the entity in connection with a modification to a lease in the same manner as those items would be accounted for in connection with a new lease. ##### [842-10-25-11](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:b8438534fbce8a7665d49fee59445bf262488ca471c0592c215f5e4f4bec3b94 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 reallocate the remaining [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.") and remeasure 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.") using a [discount rate for the lease](https://asc.understandingaccounting.org/glossary/d/#discount-rate-for-the-lease "For a lessee, the discount rate for the lease is the rate implicit in the lease unless that rate cannot be readily determined. In that case, the lessee is required to use its incremental borrowing rate. For a lessor, the discount rate for the lease is the rate implicit in the lease.") determined at the [effective date of the modification](https://asc.understandingaccounting.org/glossary/e/#effective-date-of-the-modification "The date that a lease modification is approved by both the lessee and the lessor.") if a contract modification does any of the following: 1. a Grants the lessee an additional right of use not included in the original contract (and that modification 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)) 2. b Extends or reduces the term of an existing [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.") (for example, changes 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.") from five to eight years or vice versa), other than through the exercise of a contractual option to extend or terminate the lease (as described in paragraph [842-20-35-5](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-5)) 3. c Fully or partially terminates an existing lease (for example, reduces the assets subject to the lease) 4. d Changes the consideration in the contract only. ##### [842-10-25-12](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:eb63556cc99ff1bc5bd4ce6c4c66a56d36876d24356066787d73fbc4bc38f190 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the case of (a), (b), or (d) in paragraph [842-10-25-11](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-11), the lessee shall recognize the amount of the remeasurement of the lease liability for the modified lease as an adjustment to the corresponding [right-of-use asset](https://asc.understandingaccounting.org/glossary/r/#right-of-use-asset "An asset that represents a lessee's right to use an underlying asset for the lease term."). ##### [842-10-25-13](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:db459db3fccaecad4972197ee896183a5d9fe7a7adc67d08fce8b31ca9c3647e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In the case of (c) in paragraph [842-10-25-11](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-11), the lessee shall decrease the carrying amount of the right-of-use asset on a basis proportionate to the full or partial termination of the existing lease. Any difference between the reduction in the lease liability and the proportionate reduction in the right-of-use asset shall be recognized as a gain or a loss at the effective date of the modification. ##### [842-10-25-14](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:f0267563cab19ab66fea9c6bd11f5839d803f2425b255b891ede8a20f04bcf0d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a [finance lease](https://asc.understandingaccounting.org/glossary/f/#finance-lease "From the perspective of a lessee, a lease that meets one or more of the criteria in paragraph 842-10-25-2.") is modified and the modified lease is 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."), any difference between the carrying amount of the right-of-use asset after recording the adjustment required by paragraph [842-10-25-12](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-12) or [842-10-25-13](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-13) and the carrying amount of the right-of-use asset that would result from applying the initial operating right-of-use asset measurement guidance in paragraph [842-20-30-5](https://asc.understandingaccounting.org/asc/842/20/#842-20-30-5) to the modified lease shall be accounted for in the same manner as a rent prepayment or a lease incentive. ##### [842-10-25-15](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:9f96e2860bd2808df6573dc05cd647bccc20bae5665d520b36c0d6cb085f9d38 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If 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.") is modified and the modification is not accounted for as a separate [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") in accordance with paragraph [842-10-25-8](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-8), 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.") shall account for the modification as if it were a termination of the existing [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.") and the creation of a new lease that commences on the [effective date of the modification](https://asc.understandingaccounting.org/glossary/e/#effective-date-of-the-modification "The date that a lease modification is approved by both the lessee and the lessor.") as follows: 1. a If the modified lease is classified as an operating lease, the lessor shall consider any prepaid or accrued lease rentals relating to the original lease as a part of 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.") for the modified lease. 2. b If the modified lease is classified as a [direct financing lease](https://asc.understandingaccounting.org/glossary/d/#direct-financing-leases "Glossary term superseded by Accounting Standards Update No. 2016-02.") or 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."), the lessor shall derecognize any deferred rent liability or accrued rent asset and adjust the [selling profit or selling loss](https://asc.understandingaccounting.org/glossary/s/#selling-profit-or-selling-loss "At the commencement date, selling profit or selling loss equals: The fair value of the underlying asset or the sum of (1) the lease receivable and (2) any lease payments prepaid by the lessee, if lower; minus The carrying amount of the underlying asset net of any unguaranteed residual asset; minus Any deferred initial direct costs of the lessor.") accordingly. ##### [842-10-25-16](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:81b43b1b27a855bbaba821df9d2cd038b8f44d2b850fa5a0327dd5e2f8072bca Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a direct financing lease is modified and the modification 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), the lessor shall account for the modified lease as follows: 1. a If the modified lease is classified as a direct financing lease, the lessor shall adjust the discount rate for the modified lease so that the initial net investment in the modified lease equals the carrying amount of the net investment in the original lease immediately before the effective date of the modification. 2. b If the modified lease is classified as a sales-type lease, the lessor shall account for the modified lease in accordance with the guidance applicable to sales-type leases in Subtopic 842-30, with 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.") of the modified lease being the effective date of the modification. In calculating the selling profit or selling loss on the lease, the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") of 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.") is its fair value at the effective date of the modification and its carrying amount is the carrying amount of the net investment in the original lease immediately before the effective date of the modification. 3. c If the modified lease is classified as an operating lease, the carrying amount of the underlying asset equals the net investment in the original lease immediately before the effective date of the modification. ##### [842-10-25-17](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:74552e3a43c91720eea4439507af6a8fca82302a68f78f359d4443ab563d867f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a sales-type lease is modified and the modification 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), the lessor shall account for the modified lease as follows: 1. a If the modified lease is classified as a sales-type or a direct financing lease, in the same manner as described in paragraph [842-10-25-16(a)](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-16) 2. b If the modified lease is classified as an operating lease, in the same manner as described in paragraph [842-10-25-16(c)](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-16). ##### [842-10-25-18](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:a63a10db389103aeb74acbe2ed9761f938de1cc59182917123ad83deae27dcec Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Examples 15 through 22 (paragraphs [842-10-55-159 through 55-209](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-159) ) for illustrations of the requirements on [lease modifications](https://asc.understandingaccounting.org/glossary/l/#lease-modification "A change to the terms and conditions of a contract that results in a change in the scope of or the consideration for a lease (for example, a change to the terms and conditions of the contract that adds or terminates the right to use one or more underlying assets or extends or shortens the contractual lease term)."). #### Contract Combinations ##### [842-10-25-19](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:55:57.299Z to 2026-09-10T01:55:57.299Z Record version: sha256:299598620d08036baf39030610024be173256a0a79a3864ff6cbea40b14371eb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall combine two or more [contracts](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations."), at least one of which 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."), entered into at or near the same time with the same counterparty (or related parties) and consider the contracts as a single transaction if any of the following criteria are met: 1. a The contracts are negotiated as a package with the same commercial objective(s). 2. b The amount of consideration to be paid in one contract depends on the price or performance of the other contract. 3. c The rights to use [underlying assets](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.") conveyed in the contracts (or some of the rights of use conveyed in the contracts) are a single lease component in accordance with paragraph [842-10-15-28](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-28).