# ASC 842-10-30: Leases — Overall — 30 Initial Measurement Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/842/10/#30-initial-measurement) 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): 2026-09-10T01:56:00.343Z to 2026-09-10T01:56:00.343Z Record version: sha256:6de337244b8ed9206ddcc217f474fa8a3943ed78bf4fa10e37e79dd62f288921 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-10-30: 30 Initial Measurement [Read section](https://asc.understandingaccounting.org/asc/842/10/#30-initial-measurement) SEC content: no #### Lease Term and Purchase Options ##### [842-10-30-1](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:00.343Z to 2026-09-10T01:56:00.343Z Record version: sha256:d4b7920dacb3715df9256ed4fbc0e372c6441aec6b7b1986b1df44462cb80ff9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall determine 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.") as the noncancellable period of the [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."), together with all of the following: 1. a Periods covered by an option to extend the lease if 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.") is reasonably certain to exercise that option 2. b Periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option 3. c Periods covered by an option to extend (or not to terminate) the lease in which exercise of the option is controlled 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."). ##### [842-10-30-2](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:00.343Z to 2026-09-10T01:56:00.343Z Record version: sha256:508ac4681a173765c930589e4ef60feddd6ab89f9621ee764eb623ad7cc2b311 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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 include the periods described in paragraph [842-10-30-1](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-1) in the lease term having considered all relevant factors that create an economic incentive for the lessee (that is, [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.")\-based, asset-based, entity-based, and market-based factors). Those factors shall be considered together, and the existence of any one factor does not necessarily signify that a lessee is reasonably certain to exercise or not to exercise an option. ##### [842-10-30-3](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:00.343Z to 2026-09-10T01:56:00.343Z Record version: sha256:92db1618bfd0d92c497238ebb28640bde08b1507fa56191efe84616460666c58 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the commencement date, an entity shall assess 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.") on the same basis as an option to extend or not to terminate a lease, as described in paragraph [842-10-30-2](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-2). ##### [842-10-30-4](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:00.343Z to 2026-09-10T01:56:00.343Z Record version: sha256:887b73ed30f2391c6eafc833d5fc50b25bb8e83da06d9847085bb6684957837f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraphs [842-10-55-19 through 55-21](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-19) for implementation guidance on commencement date and paragraphs [842-10-55-23 through 55-27](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-23) for implementation guidance on lease term and purchase options. See Examples 23 through 24 (paragraphs [842-10-55-210 through 55-224](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-210) ) for illustrations of the requirements on purchase options. #### Initial Measurement of the Lease Payments ##### [842-10-30-5](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:00.343Z to 2026-09-10T01:56:00.343Z Record version: sha256:99e586d9efdb374c8524018bb78021aa881122a5da9b9e0f4c5bcbd55d63414e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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."), 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.") shall consist of the following payments relating to the use 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.") 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 Fixed payments, including in substance fixed payments, less any lease incentives paid or payable to 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.") (see paragraphs [842-10-55-30 through 55-31](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-30) ). 2. b [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 depend on an index or a rate (such as the Consumer Price Index or a market interest rate), initially measured using the index or rate at the commencement date. 3. c The exercise price of an option to purchase the underlying asset if the lessee is reasonably certain to exercise that option (assessed considering the factors in paragraph [842-10-55-26](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-26)). 4. d Payments for [penalties](https://asc.understandingaccounting.org/glossary/p/#penalty "Any requirement that is imposed or can be imposed on the lessee by the lease agreement or by factors outside the lease agreement to do any of the following: Disburse cash Incur or assume a liability Perform services Surrender or transfer an asset or rights to an asset or otherwise forego an economic benefit, or suffer an economic detriment. Factors to consider in determining whether an economic detriment may be incurred include, but are not limited to, all of the following: The uniqueness of purpose or location of the underlying asset The availability of a comparable replacement asset The relative importance or significance of the underlying asset to the continuation of the lessee's line of business or service to its customers The existence of leasehold improvements or other assets whose value would be impaired by the lessee vacating or discontinuing use of the underlying asset Adverse tax consequences The ability or willingness of the lessee to bear the cost associated with relocation or replacement of the underlying asset at market rental rates or to tolerate other parties using the underlying asset.") for terminating the [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.") if the lease term (as determined in accordance with paragraph [842-10-30-1](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-1)) reflects the lessee exercising an option to terminate the lease. 5. e Fees paid by the lessee to the owners of a special-purpose entity for structuring the transaction. However, such fees shall not be included in 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 for purposes of applying paragraph [842-10-25-2(d)](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2). 6. f For a lessee only, amounts [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") of being owed by the lessee under [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.") (see paragraphs [842-10-55-34 through 55-36](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-34) ). ##### [842-10-30-6](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:00.343Z to 2026-09-10T01:56:00.343Z Record version: sha256:b09e0f61d7d94ecc4c90b683623daa37aa90fa5ba731aabf2a1922ba329869fd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lease payments do not include any of the following: 1. a Variable lease payments other than those in paragraph [842-10-30-5(b)](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-5) 2. b Any guarantee by the lessee of the [lessor's](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.") debt 3. c Amounts allocated to nonlease components in accordance with paragraphs [842-10-15-33 through 15-42](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-33) 4. d Leasehold improvements recognized by a lessee and accounted for in accordance with paragraph [842-20-35-12A](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-12A). ##### [842-10-30-7](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:00.343Z to 2026-09-10T01:56:00.343Z Record version: sha256:1b6dc7b3ffd16098b7e139b7d1e7eaca5a79ed4e6fe3c6f888c7d047f24ff90f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [410-20-15-3(e)](https://asc.understandingaccounting.org/asc/410/20/#410-20-15-3) addresses the scope application of Subtopic 410-20 on asset retirement obligations to obligations of a lessee in connection with a lease (see paragraph [842-10-55-37](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-37)). ##### [842-10-30-8](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:00.343Z to 2026-09-10T01:56:00.343Z Record version: sha256:5cda56dd358957cbb457f85cdfa7238e13ff6cc035a73a0091ea11760228baec Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Example 25 (paragraphs [842-10-55-225 through 55-234](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-225) ) for an illustration of the requirements on lessee accounting for variable lease payments and Example 26 (paragraphs [842-10-55-235 through 55-238](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-235) ) for an illustration of the requirements on termination penalties. ##### [842-10-30-9](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:00.343Z to 2026-09-10T01:56:00.343Z Record version: sha256:c6267df28df72221389d6b873e3353ecd97700541697e2d3022643901569b503 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [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.") for 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.") or 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.") may include, for example, either of the following: 1. a Commissions 2. b Payments made to an existing tenant to incentivize that tenant to terminate its [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."). ##### [842-10-30-10](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:00.343Z to 2026-09-10T01:56:00.343Z Record version: sha256:952458d7a457cd599f4ab963a4a00bc1b9112b7857118ffcdd2f6d7be5ec3375 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Costs to negotiate or arrange a lease that would have been incurred regardless of whether the lease was obtained, such as fixed employee salaries, are not initial direct costs. The following items are examples of costs that are not initial direct costs: 1. a General overheads, including, for example, depreciation, occupancy and equipment costs, unsuccessful origination efforts, and idle time 2. b Costs related to activities performed by the lessor for advertising, soliciting potential lessees, servicing existing leases, or other ancillary activities 3. c Costs related to activities that occur before the lease is obtained, such as costs of obtaining tax or legal advice, negotiating lease terms and conditions, or evaluating a prospective lessee's financial condition.