# ASC 842-10-55: Leases — Overall — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/842/10/#55-implementation-guidance-and-illustrations) 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): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:06c44e78d12168c350e1bdc8895113e0e3547c91eb083e7d343e9e0f1795a8bc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-10-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/842/10/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [842-10-55-1](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:833876de48d897f49b382eed4340184524a47791e56edb65ba2a2b1c8189c1a0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following flowchart depicts the decision process to follow in identifying whether a [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") 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."). The flowchart does not include all of the guidance on identifying a lease in this Subtopic and is not intended as a substitute for the guidance on identifying a lease in this Subtopic. - ![](https://asc.understandingaccounting.org/asc-img/GUID-1FC4296F-6A14-4FB4-88DA-53A6F111022B-low.gif) Start Is there an identified asset? Consider paragraphs 842-10-15-9 through 15-16. Does the customer have the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use? Consider paragraphs 842-10-15-17 through 15-19. Does the customer or the supplier have the right to direct how and for what purpose the identified asset is used throughout the period of use? Consider paragraphs 842-10-15-20(a) and 842-10-15-24 through 15-26. Neither; how and for what purpose the asset will be used is predetermined. Does the customer have the right to operate the asset throughout the period of use without the supplier having the right to change those operating instructions? Did the customer design 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? The contract contains a lease. The contract does not contain a lease. ##### [842-10-55-2](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:fc4d71f097502d7785a1eaada2368ebab135a1085d8857171594125ff226bbe2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When determining [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.") classification, one reasonable approach to assessing the criteria in paragraphs [842-10-25-2(c) through (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) would be to conclude: 1. a Seventy-five percent or more of the remaining [economic life](https://asc.understandingaccounting.org/glossary/e/#economic-life "Either the period over which an asset is expected to be economically usable by one or more users or the number of production or similar units expected to be obtained from an asset by one or more users.") 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 a major part of the remaining economic life of that underlying asset. 2. b A commencement date that falls at or near the end of the economic life of the underlying asset refers to a commencement date that falls within the last 25 percent of the total economic life of the underlying asset. 3. c Ninety percent or more 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.") of the underlying asset amounts to substantially all the fair value of the underlying asset. ##### [842-10-55-3](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:bc7aec066e98d22b7e323386789adeeb73d10fc7e2f257ad23728a83a0709647 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In some cases, it may not be practicable for an entity to determine the fair value of an underlying asset. In the context of this Topic, practicable means that a reasonable estimate of fair value can be made without undue cost or effort. It is a dynamic concept; what is practicable for one entity may not be practicable for another, what is practicable in one period may not be practicable in another, and what is practicable for one underlying asset (or class of underlying asset) may not be practicable for another. In those cases in which it is not practicable for an entity to determine the fair value of an underlying asset, lease classification should be determined without consideration of 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). ##### [842-10-55-4](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:4d47db65442c53287c44e71445a70af059f7795347b970f3ed4e917c7e53fd95 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The criterion in paragraph [842-10-25-2(a)](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2) is met in [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 provide, upon 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.") performance in accordance with the terms of the lease, that 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.") should execute and deliver to the lessee such documents (including, if applicable, a bill of sale) as may be required to release 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.") from the lease and to transfer ownership to the lessee. ##### [842-10-55-5](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:e4ad47d2b9aa3bc3d3fa75e829e2202a06fac4d98622ac8f20eb038921c2bab0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The criterion in paragraph [842-10-25-2(a)](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2) also is met in situations in which the lease requires the payment by the lessee of a nominal amount (for example, the minimum fee required by the statutory regulation to transfer ownership) in connection with the transfer of ownership. ##### [842-10-55-6](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:12e9db412837dc468dcbc4c1e42149c1d6e9960c08bec36453025bab00e07c3c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A provision in a lease that ownership of the underlying asset is not transferred to the lessee if the lessee elects not to pay the specified fee (whether nominal or otherwise) to complete the transfer is an option to purchase the underlying asset. Such a provision does not satisfy the transfer-of-ownership criterion in paragraph [842-10-25-2(a)](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2). ##### [842-10-55-7](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:1cd55f82b4a7985db831b6cfadfabfb0992fed4b2a171037ee337f0e59bf8470 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In assessing whether 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.") has an alternative use to 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.") at the end of 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.") in accordance with paragraph [842-10-25-2(e)](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2), an entity should consider the effects of contractual restrictions and practical limitations on the lessor's ability to readily direct that asset for another use (for example, selling it or leasing it to an entity other than 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.")). A contractual restriction on a lessor's ability to direct an underlying asset for another use must be substantive for the asset not to have an alternative use to the lessor. A contractual restriction is substantive if it is enforceable. A practical limitation on a lessor's ability to direct an underlying asset for another use exists if the lessor would incur significant economic losses to direct the underlying asset for another use. A significant economic loss could arise because the lessor either would incur significant costs to rework the asset or would only be able to sell or re-lease the asset at a significant loss. For example, a lessor may be practically limited from redirecting assets that either have design specifications that are unique to the lessee or that are located in remote areas. The possibility of the [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") with the customer being terminated is not a relevant consideration in assessing whether the lessor would be able to readily direct the underlying asset for another use. ##### [842-10-55-8](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:53a2bbf4630e562b7520dc87e5382c4b0d88bc2aeba6932aa57f84a4bd689249 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When evaluating 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.") classification 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), 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.") should be reduced by any related investment tax credit retained 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.") and expected to be realized by the lessor. ##### [842-10-55-9](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:39c04be0f70c69135930b162b1f8f4d40ad78e2ec303563c3e044ad9200c2cde Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Lessors](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 obtain [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.") for a portfolio of [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.") for which settlement is not solely based on the residual value of the individual underlying assets. In such cases, the lessor is economically assured of receiving a minimum residual value for a portfolio of assets that are subject to separate [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.") but not for each individual asset. Accordingly, when an asset has a residual value in excess of the “guaranteed” amount, that excess is offset against shortfalls in residual value that exist in other assets in the portfolio. ##### [842-10-55-10](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:e0e347d72c08dd47fede477f3ffd473d8189a0a57aaae0704f7c16ae67ff1962 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Residual value guarantees of a portfolio of underlying assets preclude a lessor from determining the amount of the guaranteed residual value of any individual underlying asset within the portfolio. Consequently, no such amounts should be considered when evaluating the lease classification criteria in paragraphs [842-10-25-2(d) and 842-10-25-3(b)(1)](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2). ##### [842-10-55-11](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:7df1e9190e046cc3e4553021886b95a770be6192d620632e5e5e617ac5922376 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a [business combination](https://asc.understandingaccounting.org/glossary/b/#business-combination "A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as true mergers or mergers of equals also are business combinations. See also Acquisition by a Not-for-Profit Entity.") or an [acquisition by a not-for-profit entity](https://asc.understandingaccounting.org/glossary/a/#acquisition-by-a-not-for-profit-entity "A transaction or other event in which a not-for-profit acquirer obtains control of one or more nonprofit activities or businesses and initially recognizes their assets and liabilities in the acquirer's financial statements. When applicable guidance in Topic 805 is applied by a not-for-profit entity, the term business combination has the same meaning as this term has for a for-profit entity. Likewise, a reference to business combinations in guidance that links to Topic 805 has the same meaning as a reference to acquisitions by not-for-profit entities."), the acquiring entity should retain the previous [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.") classification in accordance with this Subtopic unless there is a [lease modification](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).") and that 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). A [joint venture](https://asc.understandingaccounting.org/glossary/j/#joint-venture "An entity owned and operated by a small group of businesses (the joint venturers) as a separate and specific business or project for the mutual benefit of the members of the group. A government may also be a member of the group. The purpose of a joint venture frequently is to share risks and rewards in developing a new market, product, or technology; to combine complementary technological knowledge; or to pool resources in developing production or other facilities. A joint venture also usually provides an arrangement under which each joint venturer may participate, directly or indirectly, in the overall management of the joint venture. Joint venturers thus have an interest or relationship other than as passive investors. An entity that is a subsidiary of one of the joint venturers is not a joint venture. The ownership of a joint venture seldom changes, and its equity interests usually are not traded publicly. A minority public ownership, however, does not preclude an entity from being a joint venture. As distinguished from a corporate joint venture, a joint venture is not limited to corporate entities.") formation accounted for in accordance with Subtopic 805-60 should apply the guidance in this paragraph applicable to the acquiring entity in a business combination. The joint venture should be viewed as analogous to the acquiring entity in a business combination, and any recognized businesses and/or assets should be viewed as analogous to an acquiree. ##### [842-10-55-12](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:de416a5e605818ae94e40730bdedd5b44cfc18011c81f7ea3d242afb23fd7faf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Except for [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.") between entities under common control accounted for in accordance with the practical expedient in paragraph [842-10-15-3A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-3A), leases between related parties should be classified in accordance with the lease classification criteria applicable to all other leases on the basis of the legally enforceable terms and conditions of the lease. Additionally, except for leases between entities under common control accounted for in accordance with paragraph [842-10-15-3A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-3A), the classification and accounting for the leases should be the same as for leases between unrelated parties in the separate financial statements of the related parties. ##### [842-10-55-13](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:b7c5c0ab05a6de32b71e2f6277b8434c07e277f86c6de871ea99bff4d8d6bccd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because of special provisions normally present in [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.") involving terminal space and other airport facilities owned by a governmental unit or authority, the [economic life](https://asc.understandingaccounting.org/glossary/e/#economic-life "Either the period over which an asset is expected to be economically usable by one or more users or the number of production or similar units expected to be obtained from an asset by one or more users.") of such facilities for purposes of classifying a lease is essentially indeterminate. Likewise, it may not be practicable to determine 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."). If it is impracticable to determine the fair value of the underlying asset and such leases also do not provide for a transfer of ownership or a purchase option that 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, they should be classified as [operating leases](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."). This guidance also applies to leases of other facilities owned by a governmental unit or authority in which the rights of the parties are essentially the same as in a lease of airport facilities. Examples of such leases may be those involving facilities at ports and bus terminals. The guidance in this paragraph is intended to apply to leases only if all of the following conditions are met: 1. a The underlying asset is owned by a governmental unit or authority. 2. b The underlying asset is part of a larger facility, such as an airport, operated by or on behalf of 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."). 3. c The underlying asset is a permanent structure or a part of a permanent structure, such as a building, that normally could not be moved to a new location. 4. d The lessor, or in some circumstances a higher governmental authority, has the explicit right under the lease agreement or existing statutes or regulations applicable to the underlying asset to terminate the lease at any time 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."), such as by closing the facility containing the underlying asset or by taking possession of the facility. 5. e The lease neither transfers ownership of the underlying asset to the lessee nor allows the lessee to purchase or otherwise acquire ownership of the underlying asset. 6. f The underlying asset or equivalent asset in the same service area cannot be purchased or leased from a nongovernmental unit or authority. An equivalent asset in the same service area is an asset that would allow continuation of essentially the same service or activity as afforded by the underlying asset without any appreciable difference in economic results to the lessee. ##### [842-10-55-14](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:f555d5d09287499ec095ab7c2beb5ff8cd07fb023720c80a86dc658c1e9b6be9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Leases of underlying assets not meeting all of the conditions in paragraph [842-10-55-13](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-13) are subject to the same criteria for classifying leases under this Subtopic that are applicable to leases not involving government-owned property. ##### [842-10-55-15](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:94b48c9d4c6980ae7903908d5ba8e518ef8bb80cf7e55e46f0b835be3d72eccb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A provision that requires [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.") indemnification for environmental contamination, whether for environmental contamination caused by the lessee during its 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.") over 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 for preexisting environmental contamination, should not affect the classification 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."). ##### [842-10-55-16](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:9462f95589319ada19b179626ce1600166be9627c4787fa4b19d9287dd426648 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In some situations, tax-exempt debt is issued to finance construction of a facility, such as a plant or hospital, that is transferred to a user of the facility by [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."). A lease may serve as collateral for the guarantee of payments equivalent to those required to service the tax-exempt debt. Payments required by the terms of the lease are essentially the same, as to both amount and timing, as those required by the tax-exempt debt. A [lease modification](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).") resulting from a refunding 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.") of tax-exempt debt (including an [advance refunding](https://asc.understandingaccounting.org/glossary/a/#advance-refunding "A transaction involving the issuance of new debt to replace existing debt with the proceeds from the new debt placed in trust or otherwise restricted to retire the existing debt at a determinable future date or dates.")) should be accounted for in the same manner (that is, in accordance with paragraphs [842-10-25-8 through 25-18](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-8) ) as any other lease modification. For example, if the perceived economic advantages of the refunding are passed through 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.") in the form of reduced [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."), the lessee should account for the modification in accordance with paragraph [842-10-25-12](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-12), while the lessor should account for the modification in accordance with the applicable guidance in paragraphs [842-10-25-15 through 25-17](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-15) . ##### [842-10-55-17](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:3b8d2962de2dd9f2ed6ee69322a3d4b0bd82d781dd4db356b03735c937429c97 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Under a master [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.") agreement, 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.") may gain control over the use of additional [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.") during the term of the agreement. If the agreement specifies a minimum number of units or dollar value of equipment, the lessee obtaining control over the use of those additional underlying assets is not a [lease modification](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)."). Rather, the entity (whether a lessee 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.")) applies the guidance in paragraphs [842-10-15-28 through 15-42](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-28) when identifying the separate lease components and allocating 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 those components. Paragraph [842-10-55-22](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-22) explains that a master lease agreement may, therefore, result in multiple [commencement dates](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."). ##### [842-10-55-18](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:a417f5a39e587020a63f9b78ae104630a5cd69d243ae6f10d3172a569fce6d1c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the master lease agreement permits the lessee to gain control over the use of additional underlying assets during the term of the agreement but does not commit the lessee to doing so, the lessee's taking control over the use of an additional underlying asset should be accounted for as a lease modification in accordance with paragraphs [842-10-25-8 through 25-18](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-8) . ##### [842-10-55-19](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:c518cff75cfe39c969f6dc05a077befbccf06864a7b464aea1985a02ca4ee0b6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In some [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.") arrangements, 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.") may make 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.") available for use by 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.") (for example, the lessee may take possession of or be given control over the use of the underlying asset) before it begins operations or makes [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.") under the terms of the lease. During this period, the lessee has the right to use the underlying asset and does so for the purpose of constructing a lessee asset (for example, leasehold improvements). ##### [842-10-55-20](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:718beade2d55556adefe7da83f726adb20925254c247e72e6d0433d8d4ce9083 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") may require the lessee to make lease payments only after construction is completed and the lessee begins operations. Alternatively, some contracts require the lessee to make lease payments when it takes possession of or is given control over the use of the underlying asset. The timing of when lease payments begin under the contract does not affect 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 lease. ##### [842-10-55-21](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-21) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:14123b2ba2c0c5cefca7bdf516cbe9bc15f35be4c473fe1cf9707ca15ab70839 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lease costs (or income) associated with building and ground leases incurred (earned) during and after a construction period are for the right to use the underlying asset during and after construction of a lessee asset. There is no distinction between the right to use an underlying asset during a construction period and the right to use that asset after the construction period. Therefore, lease costs (or income) associated with ground or building leases that are incurred (earned) during a construction period should be recognized by the lessee (or lessor) in accordance with the guidance in Subtopics 842-20 and 842-30, respectively. That guidance does not address whether a lessee that accounts for the sale or rental of real estate projects under Topic 970 should capitalize rental costs associated with ground and building leases. ##### [842-10-55-22](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-22) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:c1cf5570116d27392f64ba23fb8b6a3f1d151f22505398aade8c84c8240a072b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There may be multiple [commencement dates](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.") resulting from a master [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.") agreement. That is because a master lease agreement may cover a significant number of [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."), each of which are made available for use by 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.") on different dates. Although a master lease agreement may specify that the lessee must take a minimum number of units or dollar value of equipment, there will be multiple commencement dates unless all of the underlying assets subject to that minimum are made available for use by the lessee on the same date. ##### [842-10-55-23](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-23) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:548e7d15b92ffffd2b97da58eb9ede7a60d1802f3a72e47a9eb2a48e98a9a0cb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity should determine the noncancellable period of 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.") when determining 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."). When assessing the length of the noncancellable period of a lease, an entity should apply the definition of a [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") and determine the period for which the contract is enforceable. A lease is no longer enforceable when both 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.") and 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.") each have the right to terminate the lease without permission from the other party with no more than an insignificant [penalty](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."). ##### [842-10-55-24](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-24) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:6520db96ff21ef3676bd526f0f226e2bcfb90448406f1123f491d9230bd61944 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If only a lessee has the right to terminate a lease, that right is considered to be an option to terminate the lease available to the lessee that an entity considers when determining the lease term, as described in paragraph [842-10-30-1(b)](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-1). If only a lessor has the right to terminate a lease, the lease term includes the period covered by the option to terminate the lease, as described in paragraph [842-10-30-1(c)](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-1). ##### [842-10-55-25](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-25) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:c94199c7f769381b3ed4fa5fc4bcc4f022947f9a5188a83ba9988e988e1b4f73 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The lease term begins 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.") and includes any rent-free periods provided to the lessee by the lessor. ##### [842-10-55-26](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-26) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:ffb26880e7d8cbf4df0b693e90639857a34a8fac791ebc0aedf6da9437356975 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 assesses whether 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 or not to exercise an option by considering all economic factors relevant to that assessment—contract-based, asset-based, market-based, and entity-based factors. An entity's assessment often will require the consideration of a combination of those factors because they are interrelated. Examples of economic factors to consider include, but are not limited to, any of the following: 1. a Contractual terms and conditions for the optional periods compared with current market rates, such as: 1. 1 The amount of [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.") in any optional period 2. 2 The amount of any [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.") or other contingent payments, such as payments under termination penalties and [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.") 3. 3 The terms and conditions of any options that are exercisable after initial optional periods (for example, the terms and conditions of a purchase option that is exercisable at the end of an extension period at a rate that is currently below market rates). 2. b Significant leasehold improvements that are expected to have significant economic value for the lessee when the option to extend or terminate 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.") or 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.") becomes exercisable. 3. c Costs relating to the termination of the lease and the signing of a new lease, such as negotiation costs, relocation costs, costs of identifying another underlying asset suitable for the lessee's operations, or costs associated with returning the underlying asset in a contractually specified condition or to a contractually specified location. 4. d The importance of that underlying asset to the lessee's operations, considering, for example, whether the underlying asset is a specialized asset and the location of the underlying asset. ##### [842-10-55-27](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-27) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:ebd7860e0ad16171b63561f479d845eb6f2856ff50af082bd4103ae2a03978df Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The existence of a [fiscal funding clause](https://asc.understandingaccounting.org/glossary/f/#fiscal-funding-clause "A provision by which the lease is cancelable if the legislature or other funding authority does not appropriate the funds necessary for the governmental unit to fulfill its obligations under the lease agreement.") in 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.") agreement requires an assessment of the likelihood of lease cancellation through exercise of the fiscal funding clause. If it is more than [remote](https://asc.understandingaccounting.org/glossary/r/#remote "The chance of the future event or events occurring is slight.") that the fiscal funding clause will be exercised, 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.") should include only those periods for which funding is reasonably certain. ##### [842-10-55-28](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-28) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:6d982771db8794c459da2fa4618a4a3a5eefa48812a7914233c6b81a36f05ba6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples of significant events or significant changes in circumstances that 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.") should consider in accordance with paragraph [842-10-35-1](https://asc.understandingaccounting.org/asc/842/10/#842-10-35-1) include, but are not limited to, the following: 1. a Constructing significant leasehold improvements that are expected to have significant economic value for the lessee when the option becomes exercisable 2. b Making significant modifications or customizations to 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.") 3. c Making a business decision that is directly relevant to the lessee's ability to exercise or not to exercise an option (for example, extending 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.") of a complementary asset or disposing of an alternative asset) 4. d Subleasing the underlying asset for a period beyond the exercise date of the option. ##### [842-10-55-29](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-29) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:49269e3afe285c834aec14b3b9215ce70e1cd292d2611044bd05f281c63fd2f3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A change in market-based factors (such as market rates to lease or purchase a comparable asset) should not, in isolation, trigger reassessment of 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 a lessee option to purchase the underlying asset. ##### [842-10-55-30](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-30) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:4f875af2e07785bc524342ec2ea1d805bab8a72c74b482d1510464791ccd9cc5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [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.") incentives include both of the following: 1. a Payments made to or on behalf of 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.") 2. b Losses incurred 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.") as a result of assuming a lessee's preexisting lease with a third party. In that circumstance, the lessor and the lessee should independently estimate any loss attributable to that assumption. For example, the lessee's estimate of the lease incentive could be based on a comparison of the new lease with the market rental rate available for similar [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.") or the market rental rate from the same lessor without the lease assumption. The lessor should estimate any loss on the basis of the total remaining costs reduced by the expected benefits from the [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.") for use of the assumed underlying asset. ##### [842-10-55-31](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-31) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:0865da09d4b6c5391ec0b74f6b00294b626a7536a5fec5908c74da49e74ef8a4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [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.") include in substance fixed lease payments. In substance fixed payments are payments that may, in form, appear to contain variability but are, in effect, unavoidable. In substance fixed payments 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, any of the following: 1. a Payments that do not create genuine variability (such as those that result from clauses that do not have economic substance) 2. b The lower of the payments to be made when a lessee has a choice about which set of payments it makes, although it must make at least one set of payments. ##### [842-10-55-32](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-32) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:4dda76627624a0df1feca8a10499cb8ac810ee4c5c5a46763b81a7938d20a7b1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [460-10-15-4(c)](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-4) states that, except as provided in paragraph [460-10-15-7](https://asc.understandingaccounting.org/asc/460/10/#460-10-15-7), the provisions of Subtopic 460-10 on guarantees apply to indemnification agreements ([contracts](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.")) that contingently require an indemnifying party (guarantor) to make payments to an indemnified party (guaranteed party) based on changes in an underlying that is related to an asset, a liability, or an equity security of the indemnified party. Paragraph [460-10-55-23A](https://asc.understandingaccounting.org/asc/460/10/#460-10-55-23A) provides related implementation guidance for a tax indemnification provided to 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."). ##### [842-10-55-33](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-33) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:163c0fb47108a3274af0bce90c7858ef83d72c009f3f5d68d7e2cbd0639b6a41 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A lessor should evaluate a commitment to guarantee performance 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.") or to effectively protect 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.") from obsolescence of the underlying asset in accordance with paragraphs [606-10-55-30 through 55-35](https://asc.understandingaccounting.org/asc/606/10/#606-10-55-30) on [warranties](https://asc.understandingaccounting.org/glossary/w/#warranty "A guarantee for which the underlying is related to the performance (regarding function, not price) of nonfinancial assets that are owned by the guaranteed party. The obligation may be incurred in connection with the sale of goods or services; if so, it may require further performance by the seller after the sale has taken place."). If the lessor's commitment is more extensive than a typical product warranty, it might indicate that the commitment is providing a service to the lessee that should be accounted for as a nonlease component of the contract. ##### [842-10-55-34](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-34) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:8f667cb6c6630f6f280ca14c7371764757eed13b73ffc43c232b64897fbb12b6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A lease provision requiring the lessee to make up a residual value deficiency that is attributable to damage, extraordinary wear and tear, or excessive usage is similar to variable lease payments in that the amount is not determinable at the commencement date. Such a provision does not constitute a lessee guarantee of the residual value. ##### [842-10-55-35](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-35) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:053bf9d2cf0cdff3a36cb5bec16132ae8e57d6acaf5d121636d0116c235c0abe Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the lessor has the right to require the lessee to purchase the underlying asset by the end of the lease term, the stated purchase price is included in lease payments. That amount is, in effect, a guaranteed residual value that the lessee is obligated to pay on the basis of circumstances outside its control. ##### [842-10-55-36](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-36) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:e0e6e6b719c91df4643e6a7573735737a8229eb5bfc836e70a9cd1ab901e2e2c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A residual value guarantee obtained by the lessee from an unrelated third party for the benefit of the lessor should not be used to reduce the amount of the lessee's lease payments under paragraph [842-10-30-5(f)](https://asc.understandingaccounting.org/asc/842/10/#842-10-30-5) except to the extent that the lessor explicitly releases the lessee from obligation, including the secondary obligation, which is if the guarantor defaults, a residual value deficiency must be made up. Amounts paid in consideration for a guarantee by an unrelated third party are executory costs and are not included in the lessee's lease payments. ##### [842-10-55-37](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-37) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:e34a69444de010c9c060eadfb594b78eefec14d13834fa439a0f13b169f295e0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Obligations imposed by a lease agreement to return an underlying asset to its original condition if it has been modified by the lessee (for example, a requirement to remove a lessee-installed leasehold improvement) generally would not meet the definition of lease payments or variable lease payments and would be accounted for in accordance with Subtopic 410-20 on asset retirement and environmental obligations. In contrast, costs to dismantle and remove an underlying asset at the end of the lease term that are imposed by the lease agreement generally would be considered lease payments or variable lease payments. ##### [842-10-55-38](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-38) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:412c46d2f9c24d7e3776362b415f5a28694d1ea64c65120d067898e27c4ca72b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Some leases contain indemnification clauses that indemnify lessors on an after-tax basis for certain tax benefits that the lessor may lose if a change in the tax law precludes realization of those tax benefits. Although the indemnification payments may appear to meet the definition of variable lease payments, those payments are not of the nature normally expected to arise under variable lease payment provisions. ##### [842-10-55-39](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-39) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:a6603f49502c30487666c906406061f99a75219d9015b0ba7207a28a341f9c70 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because of the close association of the indemnification payments to specific aspects of the tax law, any payments should be accounted for in a manner that recognizes the tax law association. The lease classification should not be changed. ##### [842-10-55-40](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-40) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:362027538e8e83880cdec92db02bdc7495799c38e683ce7807a2fb95f8fbc569 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [842-30-55-16](https://asc.understandingaccounting.org/asc/842/30/#842-30-55-16) discusses a lessor's accounting for guarantee payments received. #### Illustrations ##### [842-10-55-41](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-41) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:ef128a4a129e35fa24248b1608a47e52e8c7f9c349b944edac069a1cd77617df Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples 1 through 10 illustrate the identification of a lease. ##### [842-10-55-42](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-42) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:f4256c0d7cf4337659155f53237869c7af56397e887f054260ad329b5e95d658 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A contract between Customer and a freight carrier (Supplier) provides Customer with the use of 10 rail cars of a particular type for 5 years. The contract specifies the rail cars; the cars are owned by Supplier. Customer determines when, where, and which goods are to be transported using the cars. When the cars are not in use, they are kept at Customer's premises. Customer can use the cars for another purpose (for example, storage) if it so chooses. However, the contract specifies that Customer cannot transport particular types of cargo (for example, explosives). If a particular car needs to be serviced or repaired, Supplier is required to substitute a car of the same type. Otherwise, and other than on default by Customer, Supplier cannot retrieve the cars during the five-year period. ##### [842-10-55-43](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-43) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:af7628e89c61f0a1192d1a8a774120a3000ad51cbc2096013b0af79259fa0586 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract also requires Supplier to provide an engine and a driver when requested by Customer. Supplier keeps the engines at its premises and provides instructions to the driver detailing Customer's requests to transport goods. Supplier can choose to use any one of a number of engines to fulfill each of Customer's requests, and one engine could be used to transport not only Customer's goods, but also the goods of other customers (for example, if other customers require the transport of goods to destinations close to the destination requested by Customer and within a similar timeframe, Supplier can choose to attach up to 100 rail cars to the engine). ##### [842-10-55-44](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-44) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:b804bae7865ec67f922c017001db86097ed17b994e623004a5cba3af57636483 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract contains leases of rail cars. Customer has the right to use 10 rail cars for 5 years. ##### [842-10-55-45](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-45) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:f4f88de34cda7d9394b9cc7f46d0814f4930f97c5802f5ef9945fb9fb8f23264 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There are 10 identified cars. The cars are explicitly specified in the contract. Once delivered to Customer, the cars can be substituted only when they need to be serviced or repaired. The engine used to transport the rail cars is not an identified asset because it is neither explicitly specified nor implicitly specified in the contract. ##### [842-10-55-46](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-46) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:b75d0df80ac8d3463bc7212b8963b290c0a257b71edb411c97a47e9acbae2c4e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer has the right to control the use of the 10 rail cars throughout the 5-year period of use because: 1. a Customer has the right to obtain substantially all of the economic benefits from use of the cars over the five-year period of use. Customer has exclusive use of the cars throughout the period of use, including when they are not being used to transport Customer's goods. 2. b Customer has the right to direct the use of the cars. The contractual restrictions on the cargo that can be transported by the cars are protective rights of Supplier and define the scope of Customer's right to use the cars. Within the scope of its right of use defined in the contract, Customer makes the relevant decisions about how and for what purpose the cars are used by being able to decide when and where the rail cars will be used and which goods are transported using the cars. Customer also determines whether and how the cars will be used when not being used to transport its goods (for example, whether and when they will be used for storage). Customer has the right to change these decisions during the five-year period of use. ##### [842-10-55-47](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-47) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:b7ccfaef7df5dfb67929a0ad36985bc589a39829b852fec7fe4be84cf9f0095e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although having an engine and driver (controlled by Supplier) to transport the rail cars is essential to the efficient use of the cars, Supplier's decisions in this regard do not give it the right to direct how and for what purpose the rail cars are used. Consequently, Supplier does not control the use of the cars during the period of use. ##### [842-10-55-48](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-48) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:b86b05f99ba4a96799c7f3bb42f17481b9da66b82f3115c52d0b35c73b143b9b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract between Customer and Supplier requires Supplier to transport a specified quantity of goods by using a specified type of rail car in accordance with a stated timetable for a period of five years. The timetable and quantity of goods specified are equivalent to Customer having the use of 10 rail cars for 5 years. Supplier provides the rail cars, driver, and engine as part of the contract. The contract states the nature and quantity of the goods to be transported (and the type of rail car to be used to transport the goods). Supplier has a large pool of similar cars that can be used to fulfill the requirements of the contract. Similarly, Supplier can choose to use any one of a number of engines to fulfill each of Customer's requests, and one engine could be used to transport not only Customer's goods, but also the goods of other customers. The cars and engines are stored at Supplier's premises when not being used to transport goods. ##### [842-10-55-49](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-49) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:314ab8adca1d364fe9057da50a9ec4dd853dbe78257f64f38508efcb5fbce91c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract does not contain a lease of rail cars or of an engine. ##### [842-10-55-50](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-50) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:992313b5fe07aab015a258ff26cc1710fd2e6da60c148380e946fea924168280 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The rail cars and the engines used to transport Customer's goods are not identified assets. Supplier has the substantive right to substitute the rail cars and engine because: 1. a Supplier has the practical ability to substitute each car and the engine throughout the period of use. Alternative cars and engines are readily available to Supplier, and Supplier can substitute each car and the engine without Customer's approval. 2. b Supplier would benefit economically from substituting each car and the engine. There would be minimal, if any, cost associated with substituting each car or the engine because the cars and engines are stored at Supplier's premises and Supplier has a large pool of similar cars and engines. Supplier benefits from substituting each car or the engine in contracts of this nature because substitution allows Supplier to, for example, (1) use cars or an engine to fulfill a task for which the cars or engine are already positioned to perform (for example, a task at a rail yard close to the point of origin) or (2) use cars or an engine that would otherwise be sitting idle because they are not being used by a customer. ##### [842-10-55-51](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-51) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:5d9843cbb26cb1a8d30686380bdce0d54d92c2869dae04ddf4c0624f2536f533 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Accordingly, Customer does not direct the use and does not have the right to obtain substantially all of the economic benefits from use of an identified car or an engine. Supplier directs the use of the rail cars and engine by selecting which cars and engine are used for each particular delivery and obtains substantially all of the economic benefits from use of the rail cars and engine. Supplier is only providing freight capacity. ##### [842-10-55-52](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-52) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:31f919e490379af2badbc5309f62237e0f7ed62e3477ced80161f601649b9866 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A coffee company (Customer) enters into a contract with an airport operator (Supplier) to use a space in the airport to sell its goods for a three-year period. The contract states the amount of space and that the space may be located at any one of several boarding areas within the airport. Supplier has the right to change the location of the space allocated to Customer at any time during the period of use. There are minimal costs to Supplier associated with changing the space for the Customer: Customer uses a kiosk (that it owns) that can be moved easily to sell its goods. There are many areas in the airport that are available and that would meet the specifications for the space in the contract. ##### [842-10-55-53](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-53) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:4b50a79b7fb30a1ce62df6eaf897950c775d79151918c5c2fee06ae38cf4ef08 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract does not contain a lease. ##### [842-10-55-54](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-54) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:16dee4dd5e5493595a26ba8242aee26e3534b7118629a12eda312238a366ba82 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although the amount of space Customer uses is specified in the contract, there is no identified asset. Customer controls its owned kiosk. However, the contract is for space in the airport, and this space can change at the discretion of Supplier. Supplier has the substantive right to substitute the space Customer uses because: 1. a Supplier has the practical ability to change the space used by Customer throughout the period of use. There are many areas in the airport that meet the specifications for the space in the contract, and Supplier has the right to change the location of the space to other space that meets the specifications at any time without Customer's approval. 2. b Supplier would benefit economically from substituting the space. There would be minimal cost associated with changing the space used by Customer because the kiosk can be moved easily. Supplier benefits from substituting the space in the airport because substitution allows Supplier to make the most effective use of the space at boarding areas in the airport to meet changing circumstances. ##### [842-10-55-55](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-55) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:9e114cb587e80cee44fc600489f2a59763dfe5677055d18a10ab2769aa2dae80 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer enters into a 15-year contract with a utilities company (Supplier) for the right to use 3 specified, physically distinct dark fibers within a larger cable connecting Hong Kong to Tokyo. Customer makes the decisions about the use of the fibers by connecting each end of the fibers to its electronic equipment (for example, Customer “lights” the fibers and decides what data and how much data those fibers will transport). If the fibers are damaged, Supplier is responsible for the repairs and maintenance. Supplier owns extra fibers but can substitute those for Customer's fibers only for reasons of repairs, maintenance, or malfunction (and is obliged to substitute the fibers in these cases). ##### [842-10-55-56](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-56) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:0c62d2dd35e41ae1b9ba90adedd39cb81b9d251c3f15a985fe6de2c97bc153e2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract contains a lease of dark fibers. Customer has the right to use the 3 dark fibers for 15 years. ##### [842-10-55-57](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-57) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:feef696daa9874531b1fa9dea5ccdfdcede6961682619275a2386320a19ab969 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There are three identified fibers. The fibers are explicitly specified in the contract and are physically distinct from other fibers within the cable. Supplier cannot substitute the fibers other than for reasons of repairs, maintenance, or malfunction. ##### [842-10-55-58](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-58) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:659253da9f865fbd8fcb776bac72f4fc58d3856d5ed7455d571f3f0a7a0b912b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer has the right to control the use of the fibers throughout the 15-year period of use because: 1. a Customer has the right to obtain substantially all of the economic benefits from use of the fibers over the 15-year period of use. Customer has exclusive use of the fibers throughout the period of use. 2. b Customer has the right to direct the use of the fibers. Customer makes the relevant decisions about how and for what purpose the fibers are used by deciding when and whether to light the fibers and when and how much output the fibers will produce (that is, what data and how much data those fibers will transport). Customer has the right to change these decisions during the 15-year period of use. ##### [842-10-55-59](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-59) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:0711beb91c3c47f8edb82892c222b4e7bc145c439ef40cabe4333ec67443bd64 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although Supplier's decisions about repairing and maintaining the fibers are essential to their efficient use, those decisions do not give Supplier the right to direct how and for what purpose the fibers are used. Consequently, Supplier does not control the use of the fibers during the period of use. ##### [842-10-55-60](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-60) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:116531066848ba475fea82b756f8b3ec5babfe782645c09671ccae6f457c30c6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer enters into a 15-year contract with Supplier for the right to use a specified amount of capacity within a cable connecting Hong Kong to Tokyo. The specified amount is equivalent to Customer having the use of the full capacity of 3 strands within the cable (the cable contains 15 fibers with similar capacities). Supplier makes decisions about the transmission of data (that is, Supplier lights the fibers and makes decisions about which fibers are used to transmit Customer's traffic and about the electronic equipment that Supplier owns and connects to the fibers). ##### [842-10-55-61](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-61) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:a3e3c796b3d4287b1a17cdd65b1ccb2e87a10acae91de014e1299e5a67a46c4f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract does not contain a lease. ##### [842-10-55-62](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-62) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:3d91233a73ea89158dd6f06413c481e6412e5cd4d9623f5df880274038de812e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Supplier makes all decisions about the transmission of its customers' data, which requires the use of only a portion of the capacity of the cable for each customer. The capacity portion that will be provided to Customer is not physically distinct from the remaining capacity of the cable and does not represent substantially all of the capacity of the cable. Consequently, Customer does not have the right to use an identified asset. ##### [842-10-55-63](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-63) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:b3a90640c7e7abb5955b670ee9e332601217ebc667aa5d797a3047023e8908c4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer enters into a contract with property owner (Supplier) to use Retail Unit A for a five-year period. Retail Unit A is part of a larger retail space with many retail units. ##### [842-10-55-64](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-64) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:0d69eb97d2910674af3b6fa472e8ba14f595f4e459f9226b07b50a49b9e3de7c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer is granted the right to use Retail Unit A. Supplier can require Customer to relocate to another retail unit. In that case, Supplier is required to provide Customer with a retail unit of similar quality and specifications to Retail Unit A and to pay for Customer's relocation costs. Supplier would benefit economically from relocating Customer only if a major new tenant were to decide to occupy a large amount of retail space at a rate sufficiently favorable to cover the costs of relocating Customer and other tenants in the retail space that the new tenant will occupy. However, although it is possible that those circumstances will arise, at inception of the contract, it is not likely that those circumstances will arise. For example, whether a major new tenant will decide to lease a large amount of retail space at a rate that would be sufficiently favorable to cover the costs of relocating Customer is highly susceptible to factors outside Supplier's influence. ##### [842-10-55-65](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-65) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:6a6a6b63d6c56713c29d570d57a39d94e92b16e7046239c3b6a6c64b5dbfc005 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract requires Customer to use Retail Unit A to operate its well-known store brand to sell its goods during the hours that the larger retail space is open. Customer makes all of the decisions about the use of the retail unit during the period of use. For example, Customer decides on the mix of goods sold from the unit, the pricing of the goods sold, and the quantities of inventory held. Customer also controls physical access to the unit throughout the five-year period of use. ##### [842-10-55-66](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-66) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:9f49cbdfbfa9088f0073875f6c6e9ffe7dff4edf6eed381229eedeaee951bc0e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract requires Customer to make fixed payments to Supplier as well as variable payments that are a percentage of sales from Retail Unit A. ##### [842-10-55-67](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-67) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:f13027b9c8e957a9cbf09e0108f459791090b3ab64e8a33cd90d7718c24c49e9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Supplier provides cleaning and security services as well as advertising services as part of the contract. ##### [842-10-55-68](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-68) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:bc693c435b42abbe86d929f583c9a2a0d1de70db709c167d39f2e0a3af38bbe4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract contains a lease of retail space. Customer has the right to use Retail Unit A for five years. ##### [842-10-55-69](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-69) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:a707be741eb4147a77d754bde16cb0b2fee67c39068b7f96bc57974ef24a41ed Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Retail Unit A is an identified asset. It is explicitly specified in the contract. Supplier has the practical ability to substitute the retail unit, but could benefit economically from substitution only in specific circumstances. Supplier's substitution right is not substantive because, at inception of the contract, those circumstances are not considered likely to arise. ##### [842-10-55-70](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-70) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:5e62506fe2f88ba84fb75ca24e09e46b6babfc85952ca1ca481b55a17d556aad Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer has the right to control the use of Retail Unit A throughout the five-year period of use because: 1. a Customer has the right to obtain substantially all of the economic benefits from use of Retail Unit A over the five-year period of use. Customer has exclusive use of Retail Unit A throughout the period of use. Although a portion of the cash flows derived from sales from Retail Unit A will flow from Customer to Supplier, this represents consideration that Customer pays Supplier for the right to use the retail unit. It does not prevent Customer from having the right to obtain substantially all of the economic benefits from use of Retail Unit A. 2. b Customer has the right to direct the use of Retail Unit A. The contractual restrictions on the goods that can be sold from Retail Unit A and when Retail Unit A is open define the scope of Customer's right to use Retail Unit A. Within the scope of its right of use defined in the contract, Customer makes the relevant decisions about how and for what purpose Retail Unit A is used by being able to decide, for example, the mix of products that will be sold in the retail unit and the sale price for those products. Customer has the right to change these decisions during the five-year period of use. ##### [842-10-55-71](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-71) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:92bf8c1d9f12f9d98b69a329069b7ea1c2b211d3aa34089dd277a45370d9b4a3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although cleaning, security, and advertising services are essential to the efficient use of Retail Unit A, Supplier's decisions in this regard do not give it the right to direct how and for what purpose Retail Unit A is used. Consequently, Supplier does not control the use of Retail Unit A during the period of use, and Supplier's decisions do not affect Customer's control of the use of Retail Unit A. ##### [842-10-55-72](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-72) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:6d54b24dd65586d79b18179a1b840480049b5cade1d27482aa85fbdb11286677 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer enters into a contract with Supplier for the use of a truck for one week to transport cargo from New York to San Francisco. Supplier does not have substitution rights. Only cargo specified in the contract is permitted to be transported on this truck for the period of the contract. The contract specifies a maximum distance that the truck can be driven. Customer is able to choose the details of the journey (speed, route, rest stops, and so forth) within the parameters of the contract. Customer does not have the right to continue using the truck after the specified trip is complete. ##### [842-10-55-73](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-73) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:1e70d29e5468228cf524d2840f1897785cc823fb675e0b0a2a95cb240e8d49e2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The cargo to be transported and the timing and location of pickup in New York and delivery in San Francisco are specified in the contract. ##### [842-10-55-74](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-74) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:0c9434ae4ea002ea1882ff2597937785fddf4363fe7fe37bac7a36c276839f0e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer is responsible for driving the truck from New York to San Francisco. ##### [842-10-55-75](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-75) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:5d276dd413c69e821164772e577d0156c1e5ae4687b66b1dd21e10207047caa4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract contains a lease of a truck. Customer has the right to use the truck for the duration of the specified trip. ##### [842-10-55-76](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-76) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:eb6edc572aa3f2da3bc488a51332917f8322ce5b36bf0116062141bbf1a588e0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There is an identified asset. The truck is explicitly specified in the contract, and Supplier does not have the right to substitute the truck. ##### [842-10-55-77](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-77) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:8214f9a258317fb86cb6b11dd337af11b24077ebf3088be7e7a8bde375ab533b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer has the right to control the use of the truck throughout the period of use because: 1. a Customer has the right to obtain substantially all of the economic benefits from the use of the truck over the period of use. Customer has exclusive use of the truck throughout the period of use. 2. b Customer has the right to direct the use of the truck. How and for what purpose the truck will be used (that is, the transport of specified cargo from New York to San Francisco within a specified time frame) are predetermined in the contract. Customer directs the use of the truck because it has the right to operate the truck (for example, speed, route, and rest stops) throughout the period of use. Customer makes all of the decisions about the use of the truck that can be made during the period of use through its control of the operations of the truck. ##### [842-10-55-78](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-78) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:b33bef44491b312e0ad8fff3ef3359fafd06525c89f026553496ec92347cdeca Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the duration of the contract is one week, this lease meets the definition of a short-term lease. ##### [842-10-55-79](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-79) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:be5f26f1ad3ca252f2887d85e6fa2de7039db97b10603e4d6ddc0e0407fbf2d6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer enters into a contract with a ship owner (Supplier) for the transport of cargo from Rotterdam to Sydney on a specified ship. The ship is explicitly specified in the contract, and Supplier does not have substitution rights. The cargo will occupy substantially all of the capacity of the ship. The contract specifies the cargo to be transported on the ship and the dates of pickup and delivery. ##### [842-10-55-80](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-80) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:8bc6fb8611b5c70c9f9aa0044abcc49d9697e4553bfebcca755347b5120e3846 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Supplier operates and maintains the ship and is responsible for the safe passage of the cargo onboard the ship. Customer is prohibited from hiring another operator for the ship or operating the ship itself during the term of the contract. ##### [842-10-55-81](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-81) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:c718f8ea0e4463d7de5a2991545130e1c79205394308048f268b3825bb4e1c11 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract does not contain a lease. ##### [842-10-55-82](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-82) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:8a21d91c5769d34906c0a140dddafcdd36bd7b7ea24cba9db1aaa99112edaaf3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There is an identified asset. The ship is explicitly specified in the contract, and Supplier does not have the right to substitute that specified ship. ##### [842-10-55-83](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-83) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:b42235119d76fa086d517343eed9ec0c9729f1b953b75d73be775bc91758b82e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer has the right to obtain substantially all of the economic benefits from use of the ship over the period of use. Its cargo will occupy substantially all of the capacity of the ship, thereby preventing other parties from obtaining economic benefits from use of the ship. ##### [842-10-55-84](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-84) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:10f19e31c27cae816e156c79f01fb7ef0e158fea554524893048d1a4abce9359 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, Customer does not have the right to control the use of the ship because it does not have the right to direct its use. Customer does not have the right to direct how and for what purpose the ship is used. How and for what purpose the ship will be used (that is, the transport of specified cargo from Rotterdam to Sydney within a specified time frame) are predetermined in the contract. Customer has no right to change how and for what purpose the ship is used during the period of use. Customer has no other decision-making rights about the use of the ship during the period of use (for example, it does not have the right to operate the ship) and did not design the ship. Customer has the same rights regarding the use of the ship as if it were one of multiple customers transporting cargo on the ship. ##### [842-10-55-85](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-85) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:13dbe3d20e43e8a479705f1defdcdce8bf144d2cc64a4ad4549d3b0db54ea398 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer enters into a contract with Supplier for the use of a specified ship for a five-year period. The ship is explicitly specified in the contract, and Supplier does not have substitution rights. ##### [842-10-55-86](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-86) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:491ed08b79a7fb03a0b5b0595ab843a14542788036b600acd04358a8285ad3fe Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer decides what cargo will be transported and whether, when, and to which ports the ship will sail, throughout the five-year period of use, subject to restrictions specified in the contract. Those restrictions prevent Customer from sailing the ship into waters at a high risk of piracy or carrying hazardous materials as cargo. ##### [842-10-55-87](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-87) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:bcd90d3880b37d34034741db22e39ebd3a2eae768fd293d9c04886e38073b7d1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Supplier operates and maintains the ship and is responsible for the safe passage of the cargo onboard the ship. Customer is prohibited from hiring another operator for the ship or operating the ship itself during the term of the contract. ##### [842-10-55-88](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-88) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:4a377515d12dd561f08f9bcd3ec90c9185fe8ab37fd293cec67d4f2b31ed0007 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract contains a lease. Customer has the right to use the ship for five years. ##### [842-10-55-89](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-89) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:cccf039129533400db4573c9e9a1fe9fddd7e372c6d398353e977d1a32ccd6f4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There is an identified asset. The ship is explicitly specified in the contract, and Supplier does not have the right to substitute that specified ship. ##### [842-10-55-90](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-90) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:d8f4f0063469336359bb2551588ddf1bb1db2b26bbe7aed29975a2876cd56fa7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer has the right to control the use of the ship throughout the five-year period of use because: 1. a Customer has the right to obtain substantially all of the economic benefits from use of the ship over the five-year period of use. Customer has exclusive use of the ship throughout the period of use. 2. b Customer has the right to direct the use of the ship. The contractual restrictions about where the ship can sail and the cargo to be transported by the ship define the scope of Customer's right to use the ship. They are protective rights that protect Supplier's investment in the ship and Supplier's personnel. Within the scope of its right of use, Customer makes the relevant decisions about how and for what purpose the ship is used throughout the five-year period of use because it decides whether, where, and when the ship sails, as well as the cargo it will transport. Customer has the right to change these decisions throughout the five-year period of use. ##### [842-10-55-91](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-91) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:5fef20ff09556b52ee70637d92e5cddff863cc9db86b64e0447bdbff66eaa7a0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although the operation and maintenance of the ship are essential to its efficient use, Supplier's decisions in this regard do not give it the right to direct how and for what purpose the ship is used. Instead, Supplier's decisions are dependent on Customer's decisions about how and for what purpose the ship is used. ##### [842-10-55-92](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-92) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:3240f387f05dae1fdbc4dc0efc427ed5d521ce1807c257ba55baa2df1e850698 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer enters into a contract with an aircraft owner (Supplier) for the use of an explicitly specified aircraft for a two-year period. The contract details the interior and exterior specifications for the aircraft. ##### [842-10-55-93](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-93) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:f0fec363505f58b223115c3bf081ac915ae3406dafd49182412039710a22eb88 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There are contractual and legal restrictions in the contract on where the aircraft can fly. Subject to those restrictions, Customer determines where and when the aircraft will fly and which passengers and cargo will be transported on the aircraft. ##### [842-10-55-94](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-94) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:45e88fb58128df3c1975fad46edcc8f9f41f8ea51337605b3c93e5253cac73cd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Supplier is responsible for operating the aircraft, using its own crew. Customer is prohibited from hiring another operator for the aircraft or operating the aircraft itself during the term of the contract. ##### [842-10-55-95](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-95) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:07569fd15b4b6064a2927ae6c6f3a797fbbe457e95d48c00d42259a791100c59 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Supplier is permitted to substitute the aircraft at any time during the two-year period and must substitute the aircraft if it is not working. Any substitute aircraft must meet the interior and exterior specifications in the contract. There are significant costs involved in outfitting an aircraft in Supplier's fleet to meet Customer's specifications. ##### [842-10-55-96](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-96) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:009835eeb0dd0dcf3b481c25f5e96702f038bed695a0e3e377abdbb785049116 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract contains a lease. Customer has the right to use the aircraft for two years. ##### [842-10-55-97](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-97) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:6cfa343f5f1d2f377138763f770884ec992cff52322333271502beea2e71a88e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There is an identified asset. The aircraft is explicitly specified in the contract, and although Supplier can substitute the aircraft, its substitution right is not substantive. Supplier's substitution right is not substantive because of the significant costs involved in outfitting another aircraft to meet the specifications required by the contract such that Supplier is not expected to benefit economically from substituting the aircraft. ##### [842-10-55-98](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-98) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:e5a4175b21354e7da830391c8c0c5eb6a7ca2568e1adb99822155c26b6b470bf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer has the right to control the use of the aircraft throughout the two-year period of use because: 1. a Customer has the right to obtain substantially all of the economic benefits from use of the aircraft over the two-year period of use. Customer has exclusive use of the aircraft throughout the period of use. 2. b Customer has the right to direct the use of the aircraft. The restrictions on where the aircraft can fly define the scope of Customer's right to use the aircraft. Within the scope of its right of use, Customer makes the relevant decisions about how and for what purpose the aircraft is used throughout the two-year period of use because it decides whether, where, and when the aircraft travels as well as the passengers and cargo it will transport. Customer has the right to change these decisions throughout the two-year period of use. ##### [842-10-55-99](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-99) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:94560e9d601190b5f0e9b9259fae33445f33aabba4c1fba31e4c84b6062194c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although the operation of the aircraft is essential to its efficient use, Supplier's decisions in this regard do not give it the right to direct how and for what purpose the aircraft is used. Consequently, Supplier does not control the use of the aircraft during the period of use, and Supplier's decisions do not affect Customer's control of the use of the aircraft. ##### [842-10-55-100](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-100) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:9a3cce3a7065fcb0e80a83a052dadaf113152a1e132e3bd3df1475030c9148ae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer enters into a contract with a manufacturer (Supplier) to purchase a particular type, quality, and quantity of shirts for a three-year period. The type, quality, and quantity of shirts are specified in the contract. ##### [842-10-55-101](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-101) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:edf0553dc05261bccc64ca33eb2a2ed568ef5c60f4ad7dbd74dba79c318edb88 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Supplier has only one factory that can meet the needs of Customer. Supplier is unable to supply the shirts from another factory or source the shirts from a third-party supplier. The capacity of the factory exceeds the output for which Customer has contracted (that is, Customer has not contracted for substantially all of the capacity of the factory). ##### [842-10-55-102](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-102) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:810a415d2477c52e975099beb697a3949796120a50b3933d1cac563f39f34c60 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Supplier makes all decisions about the operations of the factory, including the production level at which to run the factory and which customer contracts to fulfill with the output of the factory that is not used to fulfill Customer's contract. ##### [842-10-55-103](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-103) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:16d8f43ac6fd77936882bdd3d4777aa5df03cbe3502b19c911abc27c59809df3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract does not contain a lease. ##### [842-10-55-104](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-104) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:2e7234fe28a0690122aaa4fa8d763ef0b060519dbc3dfdb15ae050642a0b64a8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The factory is an identified asset. The factory is implicitly specified because Supplier can fulfill the contract only through the use of this asset. ##### [842-10-55-105](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-105) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:437f6e8f855f5b70013450bd084b33b6a1d46fe88ae477173f755a66d4fc77e9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, Customer does not control the use of the factory because it does not have the right to obtain substantially all of the economic benefits from use of the factory. This is because Supplier could decide to use the factory to fulfill other customer contracts during the period of use. ##### [842-10-55-106](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-106) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:e81165da54dc2244f6cc73d0bdf65179738d56864a8433f8feee1335a8d58fe0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer also does not control the use of the factory because it does not have the right to direct the use of the factory. Customer does not have the right to direct how and for what purpose the factory is used during the three-year period of use. Customer's rights are limited to specifying output from the factory in the contract with Supplier. Customer has the same rights regarding the use of the factory as other customers purchasing shirts from the factory. Supplier has the right to direct the use of the factory because Supplier can decide how and for what purpose the factory is used (that is, Supplier has the right to decide the production level at which to run the factory and which customer contracts to fulfill with the output produced). ##### [842-10-55-107](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-107) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:5725fff5b2515703fc531b6a540e8e32cc6070c47dacf4d9db1395594f980bf9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Either the fact that Customer does not have the right to obtain substantially all of the economic benefits from use of the factory or the fact that Customer does not have the right to direct the use of the factory would be sufficient in isolation to conclude that Customer does not control the use of the factory. ##### [842-10-55-108](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-108) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:00757a92d6d604f9775b4aebf7828450d1f2cf3c57f480964a4a66138a00570c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A utility company (Customer) enters into a contract with a power company (Supplier) to purchase all of the electricity produced by a new solar farm for 20 years. The solar farm is explicitly specified in the contract, and Supplier has no substitution rights. The solar farm is owned by Supplier, and the energy cannot be provided to Customer from another asset. Customer designed the solar farm before it was constructed—Customer hired experts in solar energy to assist in determining the location of the farm and the engineering of the equipment to be used. Supplier is responsible for building the solar farm to Customer's specifications and then operating and maintaining it. There are no decisions to be made about whether, when, or how much electricity will be produced because the design of the asset has predetermined these decisions. Supplier will receive tax credits relating to the construction and ownership of the solar farm, while Customer receives renewable energy credits that accrue from use of the solar farm. ##### [842-10-55-109](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-109) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:8126bd5575656f711ab5d58b4fc49a367b6ead86768ba215230da52c0f4b3e87 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract contains a lease. Customer has the right to use the solar farm for 20 years. ##### [842-10-55-110](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-110) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:5e6b1f78134717b7ae3368df54a607f97f20ba1e795869b37d42eab4c17f29be Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There is an identified asset because the solar farm is explicitly specified in the contract, and Supplier does not have the right to substitute the specified solar farm. ##### [842-10-55-111](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-111) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:a6fdee8c181d906f90258e9f490bb052ac2158e796ee96d09b4bfad323097bd2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer has the right to control the use of the solar farm throughout the 20-year period of use because: 1. a Customer has the right to obtain substantially all of the economic benefits from use of the solar farm over the 20-year period of use. Customer has exclusive use of the solar farm; it takes all of the electricity produced by the farm over the 20-year period of use as well as the renewable energy credits that are a by-product from use of the solar farm. Although Supplier will be receiving economic benefits from the solar farm in the form of tax credits, those economic benefits relate to the ownership of the solar farm rather than the use of the solar farm and, thus, are not considered in this assessment. 2. b Customer has the right to direct the use of the solar farm. Neither Customer nor Supplier decides how and for what purpose the solar farm is used during the period of use because those decisions are predetermined by the design of the asset (that is, the design of the solar farm has, in effect, programmed into the asset any relevant decision-making rights about how and for what purpose the solar farm is used throughout the period of use). Customer does not operate the solar farm; Supplier makes the decisions about the operation of the solar farm. However, Customer's design of the solar farm has given it the right to direct the use of the farm (as described in paragraph [842-10-15-20(b)(2)](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-20)). Because the design of the solar farm has predetermined how and for what purpose the asset will be used throughout the period of use, Customer's control over that design is substantively no different from Customer controlling those decisions. ##### [842-10-55-112](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-112) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:5ee033a97bf9b5f1d3657b63254345f58d84439e4620099972e9b02f5e16391c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer enters into a contract with Supplier to purchase all of the power produced by an explicitly specified power plant for three years. The power plant is owned and operated by Supplier. Supplier is unable to provide power to Customer from another plant. The contract sets out the quantity and timing of power that the power plant will produce throughout the period of use, which cannot be changed in the absence of extraordinary circumstances (for example, emergency situations). Supplier operates and maintains the plant on a daily basis in accordance with industry-approved operating practices. Supplier designed the power plant when it was constructed some years before entering into the contract with Customer; Customer had no involvement in that design. ##### [842-10-55-113](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-113) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:fe8b10e6a9a350fdb09beef6f1ca630d2b3c8ed179b1fc883cb2dfef4351aea8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract does not contain a lease. ##### [842-10-55-114](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-114) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:ea695e420b8c3656887d1a47e4664e9f48f67d0ca23903ba2b6c7b04a48e1da2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There is an identified asset because the power plant is explicitly specified in the contract, and Supplier does not have the right to substitute the specified plant. ##### [842-10-55-115](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-115) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:e03adb94d0e437a32727ec5432482d32cf90e40e8556f8de332ef1f235e7d725 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer has the right to obtain substantially all of the economic benefits from use of the identified power plant over the three-year period of use. Customer will take all of the power produced by the power plant over the three-year term of the contract. ##### [842-10-55-116](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-116) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:53a683e36b36ace9160bed99a97fa5a0cfa35e00f0d9efb12d142c9dfd38b47d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, Customer does not have the right to control the use of the power plant because it does not have the right to direct its use. Customer does not have the right to direct how and for what purpose the plant is used. How and for what purpose the plant is used (that is, whether, when, and how much power the plant will produce) are predetermined in the contract. Customer has no right to change how and for what purpose the plant is used during the period of use, nor does it have any other decision-making rights about the use of the power plant during the period of use (for example, it does not operate the power plant) and did not design the plant. Supplier is the only party that can make decisions about the plant during the period of use by making the decisions about how the plant is operated and maintained. Customer has the same rights regarding the use of the plant as if it were one of many customers obtaining power from the plant. ##### [842-10-55-117](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-117) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:c21e60a65949c3e61bede4e934e602f77ffe8a5f97bfa5329f48a1eec06687c1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer enters into a contract with Supplier to purchase all of the power produced by an explicitly specified power plant for 10 years. The contract states that Customer has rights to all of the power produced by the plant (that is, Supplier cannot use the plant to fulfill other contracts). ##### [842-10-55-118](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-118) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:80a25bda79fff6b4fbca37648c84471e1d537715e7f1488f66627c6305014fff Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer issues instructions to Supplier about the quantity and timing of the delivery of power. If the plant is not producing power for Customer, it does not operate. ##### [842-10-55-119](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-119) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:b7bca78f9adb82ad9da7883736af7f33b2cb4bb27c32ec931d1e5d71dafbdb4b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Supplier operates and maintains the plant on a daily basis in accordance with industry-approved operating practices. ##### [842-10-55-120](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-120) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:8403f0b35588f968b60c11ccb8614e0c8094ed9c0170b88eca8d6dfdca3fb0dd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract contains a lease. Customer has the right to use the power plant for 10 years. ##### [842-10-55-121](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-121) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:f2e2d92c14ff13747cd66c166daa43079a1f6f489ddfe19f97c294b6fca1a28d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There is an identified asset. The power plant is explicitly specified in the contract, and Supplier does not have the right to substitute the specified plant. ##### [842-10-55-122](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-122) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:c41fbdc11b633069bda3861119d344a8de6044d676d78d26b569cef3c7052c03 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer has the right to control the use of the power plant throughout the 10-year period of use because: 1. a Customer has the right to obtain substantially all of the economic benefits from use of the power plant over the 10-year period of use. Customer has exclusive use of the power plant; it has rights to all of the power produced by the power plant throughout the 10-year period of use. 2. b Customer has the right to direct the use of the power plant. Customer makes the relevant decisions about how and for what purpose the power plant is used because it has the right to determine whether, when, and how much power the plant will produce (that is, the timing and quantity, if any, of power produced) throughout the period of use. Because Supplier is prevented from using the power plant for another purpose, Customer's decision making about the timing and quantity of power produced, in effect, determines when and whether the plant produces output. ##### [842-10-55-123](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-123) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:b7a5141fbc202a86fcc0be30c886d4f4148165780c25c64c535828fa2fc22034 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although the operation and maintenance of the power plant are essential to its efficient use, Supplier's decisions in this regard do not give it the right to direct how and for what purpose the power plant is used. Consequently, Supplier does not control the use of the power plant during the period of use. Instead, Supplier's decisions are dependent on Customer's decisions about how and for what purpose the power plant is used. ##### [842-10-55-124](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-124) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:6921a0829960239c48ce76f8d5586655a39ba27df581a739fe2785d0ecd5aaf6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer enters into a contract with a telecommunications company (Supplier) for network services for two years. The contract requires Supplier to supply network services that meet a specified quality level. To provide the services, Supplier installs and configures servers at Customer's premises; Supplier determines the speed and quality of data transportation in the network using the servers. Supplier can reconfigure or replace the servers when needed to continuously provide the quality of network services defined in the contract. Customer does not operate the servers or make any significant decisions about their use. ##### [842-10-55-125](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-125) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:6ebef6e7a60b2109d009494a16b2b3e9ff819ae6209e0add7ef5a15f17f9c959 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract does not contain a lease. Instead, the contract is a service contract in which Supplier uses the equipment to meet the level of network services determined by Customer. ##### [842-10-55-126](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-126) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:53ef4130a8b9e2116cc857caf50a485dd934aa12e760dbc98ff62a06b13f605d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer does not control the use of the servers because Customer's only decision-making rights relate to deciding on the level of network services (the output of the servers) before the period of use—the level of network services cannot be changed during the period of use without modifying the contract. For example, even though Customer produces the data to be transported, that activity does not directly affect the configuration of the network services and, thus, it does not affect how and for what purpose the servers are used. Supplier is the only party that can make decisions about the use of the servers during the period of use. Supplier has the right to decide how data are transported using the servers, whether to reconfigure the servers, and whether to use the servers for another purpose. Accordingly, Supplier controls the use of the servers in providing network services to Customer. There is no need to assess whether the servers are identified assets because Customer does not have the right to control the use of the servers. ##### [842-10-55-127](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-127) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:c9713bc9ee664cae2ff362e3b4a784abb8f4e3d71f00d08b7e29e8111f5ec230 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer enters into a contract with an information technology company (Supplier) for the use of an identified server for three years. Supplier delivers and installs the server at Customer's premises in accordance with Customer's instructions and provides repair and maintenance services for the server, as needed, throughout the period of use. Supplier substitutes the server only in the case of malfunction. Customer decides which data to store on the server and how to integrate the server within its operations. Customer can change its decisions in this regard throughout the period of use. ##### [842-10-55-128](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-128) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:6d0de0c045aa9385d743877d7f976b4d8bb3d6f245566e3938c966a9c9bc6c4f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contract contains a lease. Customer has the right to use the server for three years. ##### [842-10-55-129](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-129) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:38ca64613fb7ada4887fd58fe6d533608a2003c0383ac9f7aaf115c478360b61 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. There is an identified asset. The server is explicitly specified in the contract. Supplier can substitute the server only if it is malfunctioning. ##### [842-10-55-130](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-130) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:3791422790c3ed9ed3426b9f7bc40d46cce8c84c0a3f52f28e46260e257a7cd0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Customer has the right to control the use of the server throughout the three-year period of use because: 1. a Customer has the right to obtain substantially all of the economic benefits from use of the server over the three-year period of use. Customer has exclusive use of the server throughout the period of use. 2. b Customer has the right to direct the use of the server. Customer makes the relevant decisions about how and for what purpose the server is used because it has the right to decide which aspect of its operations the server is used to support and which data it stores on the server. Customer is the only party that can make decisions about the use of the server during the period of use. ##### [842-10-55-131](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-131) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:0eb3aa4fa1988817668c1b1038bc7a4d9f98e275f623e9dc4f5613f9eedd7efd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples 11 through 14 illustrate separating components of a contract. ##### [842-10-55-132](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-132) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:df6b950f8e6e1384bf775507801dfdedd7e941df5519f65c70cd1e1005175a60 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessor leases a bulldozer, a truck, and a crane to Lessee to be used in Lessee's construction operations for three years. Lessor also agrees to maintain each piece of equipment throughout the lease term. The total consideration in the contract is $600,000, payable in $200,000 annual installments. ##### [842-10-55-133](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-133) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:2d574f7ede70099007f3d1aeda08f5fc5e728b1550bd4a54d2b8ffba3d6e8fb2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee and Lessor both conclude that the leases of the bulldozer, the truck, and the crane are each separate lease components because both of the criteria in paragraph [842-10-15-28](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-28) are met. That is: 1. a The criterion in paragraph [842-10-15-28(a)](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-28) is met because Lessee can benefit from each of the three pieces of equipment on its own or together with other readily available resources (for example, Lessee could readily lease or purchase an alternative truck or crane to use with the bulldozer). 2. b The criterion in paragraph [842-10-15-28(b)](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-28) is met because, despite the fact that Lessee is leasing all three machines for one purpose (that is, to engage in construction operations), the machines are not highly dependent on or highly interrelated with each other. The machines are not, in effect, inputs to a combined single item for which Lessee is contracting. Lessor can fulfill each of its obligations to lease one of the underlying assets independently of its fulfillment of the other lease obligations, and Lessee's ability to derive benefit from the lease of each piece of equipment is not significantly affected by its decision to lease or not lease the other equipment from Lessor. ##### [842-10-55-134](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-134) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:ec1db5d509b5c8fa5edc8c3539242abe805d36826ed0a3d48a89a130d636348b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraph [842-10-15-31](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-31), Lessee and Lessor will account for the nonlease maintenance services components separate from the three separate lease components (unless Lessee elects the practical expedient in paragraph [842-10-15-37](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-37) or Lessor elects the practical expedient in paragraph [842-10-15-42A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-42A) when the conditions in that paragraph are met—see Case B \[paragraphs [842-10-55-138 through 55-140](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-138) \] for an example in which Lessee elects the practical expedient). In accordance with the identifying performance obligations guidance in paragraphs [606-10-25-19 through 25-22](https://asc.understandingaccounting.org/asc/606/10/#606-10-25-19) , Lessor further concludes that its maintenance services for each piece of leased equipment are distinct and therefore separate performance obligations, resulting in the conclusion that there are three separate lease components and three separate nonlease components (that is, three maintenance service performance obligations). ##### [842-10-55-135](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-135) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:591c373ecee5c77c0ee0c8d2f819f943115f434e854eb1063e513261491a6a8f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessor allocates the consideration in the contract to the separate lease components and nonlease components by applying the guidance in paragraphs [606-10-32-28 through 32-41](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-28) . The consideration allocated to each separate lease component constitutes the lease payments for purposes of Lessor's accounting for those components. ##### [842-10-55-136](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-136) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:0241eb83f7fca4341cc83cc91148870a876e04559a5cc7f073973ac92c26bcb1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee allocates the consideration in the contract to the separate lease and nonlease components. Several suppliers provide maintenance services that relate to similar equipment such that there are observable standalone prices for the maintenance services for each piece of leased equipment. In addition, even though Lessor, who is the manufacturer of the equipment, requires that all leases of its equipment include maintenance services, Lessee is able to establish observable standalone prices for the three lease components on the basis of the price other lessors lease similar equipment on a standalone basis. The standalone prices for the separate lease and nonlease components are as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-6CC77620-EAA6-448E-A4E4-40482A34D1BE-low.gif) Lease Maintenance Bulldozer " $200,000 " " $50,000 " Truck " 120,000 " " 20,000 " Crane " 240,000 " " 70,000 " " $560,000 " " $140,000 " ##### [842-10-55-137](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-137) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:354e6642cd9de3b20b38fdf4bfaf59bce3ebaf63ff710606ba34f3c0cb10ff75 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee first allocates the consideration in the contract ($600,000) to the lease and nonlease components on a relative basis, utilizing the observable standalone prices determined in paragraph [842-10-55-136](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-136). Lessee then accounts for each separate lease component in accordance with Subtopic 842-20, treating the allocated consideration as the lease payments for each lease component. The nonlease components are accounted for by Lessee in accordance with other Topics. The allocation of the consideration to the lease and nonlease components is as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-0125E99A-F8FB-47CD-96CE-542BBBDB19D1-low.gif) Lease Maintenance Bulldozer " $171,429 " " $42,857 " Truck " 102,857 " " 17,143 " Crane " 205,714 " " 60,000 " " $480,000 " " $120,000 " ##### [842-10-55-138](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-138) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:30d1c6fc725a39e192169e9097ebfb664fc8e3a2c21baa77073df84c8666c476 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the same facts and circumstances as in Case A (paragraphs [842-10-55-132 through 55-137](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-132) ), except that Lessee has made an accounting policy election to use the practical expedient to not separate nonlease from lease components for its leased construction equipment. Consequently, Lessee does not separate the maintenance services from the related lease components but, instead, accounts for the contract as containing only three lease components. ##### [842-10-55-139](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-139) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:9538f0ef0274359081fdf13749adca7bb06c346ce2a7eeb593f475740e345ad6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because Lessor regularly leases each piece of equipment bundled together with maintenance services on a standalone basis, there are observable standalone prices for each of the three combined components, each of which includes the lease and the maintenance services. Because each of the three separate lease components includes the lease of the equipment and the related maintenance services, the observable standalone price for each component in this scenario is greater than the observable standalone price for each separate lease component that does not include the maintenance services in Case A. ##### [842-10-55-140](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-140) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:f91e0b264948b88fd04e8b0aa945f59f1652c1116f408a69b43379fce01d0643 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee allocates the consideration in the contract ($600,000) to the three separate lease components on a relative basis utilizing the observable standalone selling price of each separate lease component (inclusive of maintenance services) and then accounts for each separate lease component in accordance with the guidance in Subtopic 842-20, treating the allocated consideration as the lease payments for each separate lease component. The standalone prices for each of the three combined lease components is as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A0CAE7EF-C640-4D12-AEEB-5502FA7DD390-low.gif) "Standalone Price" "Relative Standalone Price" Bulldozer " $230,000 " " $215,625 " Truck " 130,000 " " 121,875 " Crane " 280,000 " " 262,500 " " $640,000 " " $600,000 " ##### [842-10-55-141](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-141) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:19bf9107791c9dd07c5cb72fb5ffb72c1019c1e390a3473786559d0874bbcff0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessor and Lessee enter into a five-year lease of a building. The contract designates that Lessee is required to pay for the costs relating to the asset, including the real estate taxes and the insurance on the building. The real estate taxes would be owed by Lessor regardless of whether it leased the building and who the lessee is. Lessor is the named insured on the building insurance policy (that is, the insurance protects Lessor's investment in the building, and Lessor will receive the proceeds from any claim). The annual lease payments are fixed at $10,000 per year, while the annual real estate taxes and insurance premium will vary and be billed by Lessor to Lessee each year. ##### [842-10-55-142](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-142) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:de05d4425dc99b5d817d8b55fb085a8b0dc12a2cd78ab4bfa0adef0824d473aa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The real estate taxes and the building insurance are not components of the contract. The contract includes a single lease component— the right to use the building. Lessee's payments of those amounts solely represent a reimbursement of Lessor's costs and do not represent payments for goods or services in addition to the right to use the building. However, because the real estate taxes and insurance premiums during the lease term are variable, those payments are variable lease payments that do not depend on an index or a rate and are excluded from the measurement of the lease liability and recognized by Lessee in profit or loss in accordance with paragraph [842-20-25-5](https://asc.understandingaccounting.org/asc/842/20/#842-20-25-5) or [842-20-25-6](https://asc.understandingaccounting.org/asc/842/20/#842-20-25-6).Lessor also recognizes those payments as variable lease payments in accordance with paragraph [842-10-15-40A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-40A) because the real estate taxes and insurance premiums are paid by Lessor to the taxing jurisdiction and insurance company and reimbursed by Lessee to Lessor. However, if Lessee paid the costs directly to the third parties, those lessor costs would not be recognized by Lessor as variable payments because of the requirement in paragraph [842-10-15-40A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-40A). ##### [842-10-55-143](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-143) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:8ea423f348fcba8f5caa1c7034adc826d5f82a3e07b81f831aea7ce097ea5a30 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the same facts and circumstances as in Case A (paragraphs [842-10-55-141 through 55-142](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-141) ), except that the fixed annual lease payment is $13,000. There are no additional payments for real estate taxes or building insurance; however, the fixed payment is itemized in the contract (that is, $10,000 for rent, $2,000 for real estate taxes, and $1,000 for building insurance). Consistent with Case A, the taxes and insurance are not components of the contract. The contract includes a single lease component, the right to use the building. The $65,000 in payments Lessee will make over the 5-year lease term are all lease payments for the single component of the contract and, therefore, are included in the measurement of the lease liability. ##### [842-10-55-144](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-144) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:04e57d0d6471fbb10ad4365d9471eca53cbba7f17dc36e2cde69c92bc4cae9a9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the same facts and circumstances as in Case B (paragraph [842-10-55-143](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-143)), except that the lease is of space within the building, rather than for the entire building, and the fixed annual lease payment of $13,000 also covers Lessor's performance of common area maintenance activities (for example, cleaning of common areas, parking lot maintenance, and providing utilities to the building). Consistent with Case B, the taxes and insurance are not components of the contract. However, the common area maintenance is a component because Lessor's activities transfer services to Lessee. That is, Lessee receives a service from Lessor in the form of the common area maintenance activities it would otherwise have to undertake itself or pay another party to provide (for example, cleaning the lobby for its customers, removing snow from the parking lot for its employees and customers, and providing utilities). The common area maintenance is a single component in this contract rather than multiple components, because Lessor performs the activities as needed (for example, plows snow or undertakes minor repairs when and as necessary) over the same period of time. ##### [842-10-55-145](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-145) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:e3d768a94c976a89c14519b79f50c28115984c5c4224804721ef0d2590a0f4e5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Therefore, the contract in Case C includes two components—a lease component (that is, the right to use the building) and a nonlease component. The consideration in the contract of $65,000 is allocated between those 2 components (unless Lessee elects the practical expedient in paragraph [842-10-15-37](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-37) or Lessor elects the practical expedient in paragraph [842-10-15-42A](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-42A) when the conditions in that paragraph are met). The amount allocated to the lease component is the lease payments in accounting for the lease. ##### [842-10-55-146](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-146) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:223978b85a027e62523cad7b0d701e365e774cbe70698f4e1f699842f21e0e39 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessor leases a gas-fired turbine plant to Lessee for eight years so that Lessee can produce electricity for its customers. The plant consists of the turbine housed within a building together with the land on which the building sits. The building was designed specifically to house the turbine, has a similar economic life as the turbine of approximately 15 years, and has no alternative use. The lease does not transfer ownership of any of the underlying assets to Lessee or grant Lessee an option to purchase any of the underlying assets. Lessor does not obtain a residual value guarantee from Lessee or any other unrelated third party. The present value of the lease payments is not substantially all of the aggregate fair value of the three underlying assets. ##### [842-10-55-147](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-147) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:a8514013f981d3a1317ee154326a59b03999cbd89aefd238c998259de2b1881c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. While the lease of the plant includes the lease of multiple underlying assets, the leases of those underlying assets do not meet the second criterion necessary to be separate lease components, which is that the right to use the underlying asset is neither dependent on nor highly interrelated with the other rights of use in the contract. Therefore, the contract contains only one lease component. The rights to use the turbine, the building, and the land are highly interrelated because each is an input to the customized combined item for which Lessee has contracted (that is, the right to use a gas-fired turbine plant that can produce electricity for distribution to Lessee's customers). ##### [842-10-55-148](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-148) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:071aec48169e3e7803f2ddeea0f1754df7e2bafd83c2d151f89c392945bd2ab2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. However, because the contract contains the lease of land, Lessee and Lessor also must consider the guidance in paragraph [842-10-15-29](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-29). Lessee and Lessor each conclude that the effect of accounting for the right to use the land as a separate lease component would be insignificant because Lessee's right to use the turbine, the building, and the land is coterminous and separating the right to use the land from the right to use the turbine and the building would not affect the lease classification of the turbine/building lease component. Lessee and Lessor each conclude that a single lease component comprising the turbine, the building, and the land would be classified as an operating lease, as would two separate lease components comprising the land and the turbine/building, respectively. ##### [842-10-55-149](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-149) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:5d3a4bb5e1bc3112848aa6a0a329d773a2e7a506ea1090677efa09d42d24c4f4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The predominant asset in the single lease component is the turbine. Lessee entered into the lease primarily to obtain the power-generation capabilities of the turbine. The building and land enable Lessee to obtain the benefits from use of the turbine. The land and building would have little, if any, use or value to Lessee in this contract without the turbine. Therefore, the remaining economic life of the turbine is considered in evaluating the classification of the single lease component. ##### [842-10-55-150](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-150) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:8c804c441d37ed5121f75af5a0bcc51f3f5bf10b2aaa6e78d334f8b36c018b58 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee and Lessor enter into a three-year lease of equipment that includes maintenance services on the equipment throughout the three-year lease term. Lessee will pay Lessor $100,000 per year plus an additional $7,000 each year that the equipment is operating a minimum number of hours at a specified level of productivity (that is, the equipment is not malfunctioning or inoperable). The potential $7,000 payment each year is variable because the payment depends on the equipment operating a minimum number of hours at a specified level of productivity. The lease is an operating lease. ##### [842-10-55-151](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-151) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:b4e97219c0d3278d1188a00efaa8dd1677c0107a2cf44ce3d3efec9fb8afcf5c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraph [842-10-15-35](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-35), variable payments other than those that depend on an index or a rate are not accounted for as consideration in the contract by Lessee. Therefore, the consideration in the contract to be allocated by Lessee to the equipment lease and the maintenance services at lease commencement includes only the fixed payments of $100,000 each year (or $300,000 in total). Lessee allocates the consideration in the contract to the equipment lease and the maintenance services on the basis of the standalone prices of each, which, for purposes of this example, are $285,000 and $45,000, respectively. - ![](https://asc.understandingaccounting.org/asc-img/GUID-809D6D9E-19F7-4714-B0D3-E2B40154EA88-low.gif) "Standalone Price" "Relative Standalone Price" Lease " $285,000 " " $259,091 " Maintenance " 45,000 " " 40,909 " " $330,000 " " $300,000 " Each $100,000 annual fixed payment and each variable payment are allocated to the equipment lease and the maintenance services on the same basis as the initial allocation of the consideration in the contract (that is, 86.4 percent to the equipment lease and 13.6 percent to the maintenance services). Therefore, annual lease expense, excluding variable expense, is $86,364. Lessee recognizes the expense related to the variable payments in accordance with paragraphs [842-20-25-6](https://asc.understandingaccounting.org/asc/842/20/#842-20-25-6) and [842-20-55-1 through 55-2](https://asc.understandingaccounting.org/asc/842/20/#842-20-55-1) . ##### [842-10-55-152](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-152) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:79b919c911df87ad66bc199a88e26e49eaa5354c2f27b6c053f47162555763b2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with paragraphs [842-10-15-39 through 15-40](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-39) , Lessor also concludes that the potential variable payments should not be accounted for as consideration in the contract. That is because the potential variable payment each year is not solely related to performance of the nonlease maintenance services; the quality and condition of the underlying asset also substantively affect whether Lessor will earn those amounts. Therefore, Lessor's allocation of the consideration in the contract ($300,000) in this Example is the same as Lessee. Lessor will allocate, in accordance with paragraph [842-10-15-40](https://asc.understandingaccounting.org/asc/842/10/#842-10-15-40), the variable payments between the lease and nonlease maintenance services (on the same basis as the initial allocation of the consideration in the contract), when and if the productivity targets are met. Lessor will recognize the portion allocated to the lease at that time and will recognize the portion allocated to the nonlease maintenance services in accordance with the guidance on satisfaction of performance obligations in Topic 606 on revenue from contracts with customers. ##### [842-10-55-153](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-153) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:2fb5510ea32e0b29e996fd55dcbfb0dc66a8146f1826eee1cca9ef99cb88f0fb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the same facts and circumstances as in Case A (paragraphs [842-10-55-150 through 55-152](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-150) ), except in this scenario the maintenance services are highly specialized and no entity would expect the equipment to meet the performance metrics without the specialized maintenance services. ##### [842-10-55-154](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-154) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:0b651b71f2afe814fd75d45b9af0fa3ac259da01f92c0e856106307aaec1dcb8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee would account for the potential variable payments consistent with Case A. The rationale for this accounting also is consistent with that in Case A. ##### [842-10-55-155](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-155) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:8456084858a77af2d02644283d8a3f71b50e120863c215c6f91dc80d1cde1303 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In contrast to Case A, Lessor concludes that the variable payments relate specifically to an outcome from Lessor's performance of its maintenance services. Therefore, Lessor evaluates the variable payments in accordance with the variable consideration guidance in paragraphs [606-10-32-5 through 32-13](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-5) . If Lessor estimates, using the most likely amount method, that it will be entitled to receive the $21,000 in variable payments and that it is probable that including that amount in the transaction price for the maintenance services would not result in a significant revenue reversal when the uncertainty of the performance bonus is resolved, the $21,000 would be included in the consideration in the contract. Because allocating the $21,000 entirely to the maintenance services would not result in an allocation that is consistent with the allocation objective in paragraph [606-10-32-28](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-28) (that is, it would result in allocating $61,909 to the maintenance services and the remainder to the equipment lease, which would not reasonably depict the consideration to which Lessor expects to be entitled for each component), the entire consideration in the contract of $321,000 is allocated on a relative standalone price basis as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-50A3FBBD-5AE1-47C3-9DA7-026CACA56163-low.gif) "Standalone Price" "Relative Standalone Price" Lease " $285,000 " " $277,227 " Maintenance " 45,000 " " 43,773 " " $330,000 " " $321,000 " ##### [842-10-55-156](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-156) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:a6223ba9b174e68ad54be3907593635beb141d3753f0bac0805cd251141ef357 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The $277,227 allocated to the equipment lease is the lease payment in accounting for the lease in accordance with Subtopic 842-30. Lessor will recognize the consideration in the contract allocated to the maintenance services in accordance with the guidance on the satisfaction of performance obligations in paragraphs [606-10-25-23 through 25-37](https://asc.understandingaccounting.org/asc/606/10/#606-10-25-23) . If the consideration in the contract changes (for example, because Lessor no longer estimates that it will receive the full $21,000 in potential variable payments), Lessor will allocate the change in the transaction price on the same basis as was initially done. ##### [842-10-55-157](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-157) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:938c44ee4fa2fc1e5f80010f0f8265d8d02b4ff8ad581e3222cca5c5d40e01a8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the same facts and circumstances as in Case B (paragraphs [842-10-55-153 through 55-156](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-153) ), except that in this scenario all of the following apply: 1. a The potential variable payments are $14,000 per year ($42,000 in total), and the annual fixed payments are $93,000 per year ($279,000 in total). 2. b While Lessor's estimate of the variable payments to which it will be entitled is $42,000, Lessor concludes that it is not probable that including the full $42,000 in potential variable payments in the consideration in the contract will not result in a significant revenue reversal (that is, the entity applies the constraint on variable consideration in paragraph [606-10-32-11](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-11)). Lessor concludes that only $28,000 is probable of not resulting in a significant revenue reversal. Therefore, the consideration in the contract is initially $307,000 ($279,000 + $28,000). ##### [842-10-55-158](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-158) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:18a76779b549e346162192024f76ae934e01a7d2e1697623a0f0a5e8e522f0f0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In contrast to Case B, Lessor concludes that allocating the variable payments entirely to the maintenance services and the fixed payments entirely to the equipment lease is consistent with the allocation objective in paragraph [606-10-32-28](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-28). This is because $42,000 (Lessor considers its estimate of the variable payments to which it expects to be entitled exclusive of the constraint on variable consideration in Topic 606 on revenue recognition) and $279,000 approximate the standalone price of the maintenance services ($45,000) and the equipment lease ($285,000), respectively. Because the variable payments are allocated entirely to the maintenance services, if the consideration in the contract changes (for example, because Lessor concludes it is now probable that it will earn the full $42,000 in variable payments), that change is allocated entirely to the maintenance services component in the contract. ##### [842-10-55-159](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-159) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:c08ded8e6ad58c77a1ee5042c1cc1df68859add9c3c476291909ad1bcdeba949 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples 15 through 22 illustrate the accounting for lease modifications. ##### [842-10-55-160](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-160) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:10d4164d8d137cd7ac60f66903677742d03e7a47d57a5e2bdfec832edb38df12 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee enters into a 10-year lease for 10,000 square feet of office space. At the beginning of Year 6, Lessee and Lessor agree to modify the lease for the remaining 5 years to include an additional 10,000 square feet of office space in the same building. The increase in the lease payments is commensurate with the market rate at the date the modification is agreed for the additional 10,000 square feet of office space. ##### [842-10-55-161](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-161) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:06930d8cdee0de2e7e7986c74224205ee25574e3c1c3bf922001216c9b0f2ffa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee accounts for the modification as a new contract, separate from the original contract. This is because the modification grants Lessee an additional right of use as compared with the original contract, and the increase in the lease payments is commensurate with the standalone price of the additional right of use. Accordingly, from the effective date of the modification, Lessee would have 2 separate contracts, each of which contain a single lease component—the original, unmodified contract for 10,000 square feet of office space and the new contract for 10,000 additional square feet of office space, respectively. Lessee would not make any adjustments to the accounting for the original lease as a result of this modification. ##### [842-10-55-162](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-162) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:d41c5c18593cecbb60d1311329bcea15f64d98202b9f318a2946952eb23d5e7e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee and Lessor enter into a 10-year lease for 10,000 square feet of office space in a building with a remaining economic life of 50 years. Annual payments are $100,000, paid in arrears. Lessee's incremental borrowing rate at the commencement date is 6 percent. The lease is classified as an operating lease. At the beginning of Year 6, Lessee and Lessor agree to modify the lease such that the total lease term increases from 10 years to 15 years. The annual lease payments increase to $110,000 per year for the remaining 10 years after the modification. Lessee's incremental borrowing rate is 7 percent at the date the modification is agreed to by the parties. ##### [842-10-55-163](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-163) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:48ac28e38a7312cfb9c349d99e9cfa8628c2fe98b1fcd356d67b9efa9da8cca1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the beginning of Year 6, Lessee's lease liability and its right-of-use asset both equal $421,236 (that is, because the lease payments are made annually in arrears and because the lease payments are even throughout the lease term, the lease liability and right-of-use asset will be equal). ##### [842-10-55-164](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-164) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:0008b186c7ec27c787bcb0b11db4f78bfd872819896408aa88add22cbd7cb66b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The modification does not grant an additional right of use to the lessee; rather, it changes (modifies) an attribute of the right to use the 10,000 square feet of office space Lessee already controls. That is, after the modification, Lessee still controls only a single right of use transferred to Lessee at the original lease commencement date. ##### [842-10-55-165](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-165) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:5c7be8dc4bb7511b8681f8992b8e421ccae1d2d02886606258f7d03f258c8fd2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the modification does not grant Lessee an additional right of use, the modification cannot be a separate contract. Therefore, at the effective date of the modification, Lessee reassesses classification of the lease (which does not change in this Example—see Case B \[paragraphs [842-10-55-166 through 55-167](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-166) \] for a change in lease classification) and remeasures the lease liability on the basis of the 10-year remaining lease term, 10 remaining payments of $110,000, and its incremental borrowing rate at the effective date of the modification of 7 percent. Consequently, the modified lease liability equals $772,594. The increase to the lease liability of $351,358 is recorded as an adjustment to the right-of-use asset (that is, there is no income or loss effect from the modification). ##### [842-10-55-166](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-166) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:5d43092abe68e7f01900d2e2e1c93b5759f7f2a8f9c3ec55ec995b7923159963 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume the same facts as in Case A (paragraphs [842-10-55-162 through 55-165](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-162) ), except that the underlying asset is a piece of equipment with a 12-year remaining economic life at the effective date of the modification. Consequently, when the lessee reassesses 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 based on the modified rights and obligations of the parties, the lessee classifies the modified lease as a finance lease (that is, because the remaining lease term of 10 years is for a major part of the 12-year remaining economic life of the equipment). ##### [842-10-55-167](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-167) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:348487e9031f6701a810c7a3f1f75b8e8bf580b00266943f2364f9b4f2e4fb4f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Consistent with Case A, at the effective date of the modification, the lessee remeasures its lease liability based on the 10-year remaining lease term, 10 remaining payments of $110,000, and its incremental borrowing rate of 7 percent. Consequently, the modified lease liability equals $772,594. The increase to the lease liability of $351,358 is recorded as an adjustment to the right-of-use asset (that is, there is no income or loss effect from the modification). However, different from Case A, beginning on the effective date of the modification, Lessee accounts for the 10-year modified lease as a finance lease. ##### [842-10-55-168](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-168) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:fc685bb11a8e0df793d0748cc500955c4bac7d6113c3a26f5922bfd850bb76ad Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee enters into a 10-year lease for 10,000 square feet of office space. The lease payments are $100,000 per year, paid in arrears. Lessee's incremental borrowing rate at lease commencement is 6 percent. At the beginning of Year 6, Lessee and Lessor agree to modify the contract to include an additional 10,000 square feet of office space on a different floor of the building for the final 4 years of the original 10-year lease term for a total annual fixed payment of $150,000 for the 20,000 square feet. ##### [842-10-55-169](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-169) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:798f12138a165158695eeeac8e24ab782c97a592063b0dd576c4be7cb6ae55a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The increase in the lease payments (of $50,000 per year) is at a substantial discount to the market rate at the date the modification is agreed to for leases substantially similar to that for the new 10,000 square feet of office space that cannot be attributed solely to the circumstances of the contract. Consequently, Lessee does not account for the modification as a separate contract. ##### [842-10-55-170](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-170) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:95f82d03287eb2671f5c9ac763ffd41a286f1423c00520b1c59d1508d54ebc3f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Instead, Lessee accounts for the modified contract, which contains 2 separate lease components—first, the original 10,000 square feet of office space and, second, the right to use the additional 10,000 square feet of office space for 4 years that commences 1 year after the effective date of the modification. There are no nonlease components of the modified contract. The total lease payments, after the modification, are $700,000 (1 payment of $100,000 + 4 payments of $150,000). ##### [842-10-55-171](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-171) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:a6fcaf9311e31ae3d16decf1ce451b48542b0513e1f13018de3e5d397b687125 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee allocates the lease payments in the modified contract to the 2 separate lease components on a relative standalone price basis, which, in this Example, results in the allocation of $388,889 to the original space lease and $311,111 to the additional space lease. The allocation is based on the remaining lease terms of each separate lease component (that is, 5 years for the original 10,000-square-foot lease and 4 years for the additional 10,000-square-foot lease). The remaining lease cost for each separate lease component is equal to the total payments, as allocated, which will be recognized on a straight-line basis over their respective lease terms. Lessee remeasures the lease liability for the original space lease as of the effective date of the modification—the lease classification of which does not change as a result of the modification—on the basis of all of the following: 1. a A remaining lease term of 5 years 2. b Annual allocated lease payments of $77,778 in Years 6 through 10 (see paragraph [842-10-55-173](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-173)) 3. c Lessee's incremental borrowing rate at the effective date of the modification of 7 percent. ##### [842-10-55-172](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-172) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:cff328b38c84ef13774cc41a5f2e2cee64b66383a2370a6a3e2ae6fd8d5c1ef8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The remeasured lease liability for the original space lease equals $318,904. Lessee recognizes the difference between the carrying amount of the modified lease liability and the carrying amount of the lease liability immediately before the modification of $102,332 ($421,236 - $318,904) as an adjustment to the right-of-use asset. ##### [842-10-55-173](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-173) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:fa1a35b50d9caae1791b982a6519829691d5f34811fedda83bde4a0be10cc766 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. During Year 6, Lessee recognizes lease cost of $77,778. At the end of Year 6, Lessee makes its lease payment of $100,000, of which $77,778 is allocated to the lease of the original office space and $22,222 is allocated to the lease of the additional office space as a prepayment of rent. Lessee allocates the lease payment in this manner to reflect even payments for the even use of the separate lease components over their respective lease terms. ##### [842-10-55-174](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-174) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:2c415b9d2708ae3809e1231b455a84b4d038d8c2fbdd7d68f46bfdf4aa37ab1b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the commencement date of the separate lease component for the additional office space, which is 1 year after the effective date of the modification, Lessee measures and recognizes the lease liability at $241,896 on the basis of all of the following: 1. a A lease term of 4 years 2. b Four allocated annual payments of $72,222 (\[allocated lease payments of $311,111 − $22,222 rent prepayment\] ÷ 4 years) 3. c Lessee's incremental borrowing rate at the commencement date of the separate lease component for the additional office space of 7.5 percent. ##### [842-10-55-175](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-175) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:de6751a7e8a981ad1c2270cdd9fdce116f1a161e5ac6bfc009d695ac34321f2e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the commencement date, the right-of-use asset for the additional office space lease component is recognized and measured at $264,118 (the sum of the lease liability of $241,896 and the prepaid rent asset of $22,222). ##### [842-10-55-176](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-176) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:4ac43b7f1e7d37fabeaded12fa2e68d370e57ef6748eb0295306977adb6abd0e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. During Years 7-10, Lessee recognizes lease cost of $77,778 each year for each separate lease component and allocates each $150,000 annual lease payment of $77,778 to the original office space lease and $72,222 to the additional office space lease. ##### [842-10-55-177](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-177) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:939c6e23abc4bbf6d1a5ca2235f170076cfa7dcb895682dec83ecc4450e52f86 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee enters into a 10-year lease for 10,000 square feet of office space. The annual lease payment is initially $100,000, paid in arrears, and increases 5 percent each year during the lease term. Lessee's incremental borrowing rate at lease commencement is 6 percent. Lessee does not provide a residual value guarantee. The lease does not transfer ownership of the office space to Lessee or grant Lessee an option to purchase the space. The lease is an operating lease for all of the following reasons: 1. a The lease term is 10 years, while the office building has a remaining economic life of 40 years. 2. b The fair value of the office space is estimated to be significantly in excess of the present value of the lease payments. 3. c The office space is expected to have an alternative use to Lessor at the end of the lease term. ##### [842-10-55-178](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-178) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:0542643f25fb361b9dd7e8d6068e850815d56940321fc353538f3d9e98992e10 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the beginning of Year 6, Lessee and Lessor agree to modify the original lease for the remaining 5 years to reduce the lease to only 5,000 square feet of the original space and to reduce the annual lease payment to $68,000. That amount will increase 5 percent each year thereafter of the remaining lease term. ##### [842-10-55-179](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-179) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:da1e6bce23095916638c651d1afab1e6b7f30cca37d3c0ae6980f68511d5feee Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The classification of the lease does not change as a result of the modification. It is clear based on the terms of the modified lease that it is not a finance lease because the modification reduces both the lease term and the lease payments. Lessee remeasures the lease liability for the modified lease at the effective date of the modification on the basis of all of the following: 1. a A remaining lease term of 5 years 2. b Lease payments of $68,000 in the year of modification (Year 6), increasing by 5 percent each year thereafter 3. c Lessee's incremental borrowing rate at the effective date of the modification of 7 percent. ##### [842-10-55-180](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-180) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:98e0adce468b0b7a20353070f3786153d6b1d7098d549f3354b7e1abbc5a5d87 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The remeasured lease liability equals $306,098. ##### [842-10-55-181](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-181) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:f67405970863deb7af79540b43509bb4682178c8c452b4711dd03d10973fff6b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The difference between the premodification liability and the modified lease liability is $284,669 ($590,767 - $306,098). That difference is 48.2 percent ($284,669 ÷ $590,767) of the premodification lease liability. The decrease in the lease liability reflects the early termination of the right to use 5,000 square feet of space (50 percent of the original leased space), the change in the lease payments, and the change in the discount rate. ##### [842-10-55-182](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-182) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:22f9dc9e7fc140b29c19b9914c5386fd8746a6665c27abd03713890b7f6af2a0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee decreases the carrying amount of the right-of-use asset to reflect the partial termination of the lease based on the adjustment to the carrying amount of the lease liability, with any difference recognized in profit or loss. The premodification right-of-use asset is $514,436. Therefore, at the effective date of the modification, Lessee reduces the carrying amount of the right-of-use asset by $247,888 (48.2% × $514,436). Lessee recognizes the difference between the adjustment to the lease liability and the adjustment to the right-of-use asset ($284,669 - $247,888 = $36,781) as a gain. ##### [842-10-55-183](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-183) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:320e1d01713c026915efbcc141e1d7917739c2e2c60304715b5197e3c045713a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee determines the proportionate decrease in the carrying amount of the right-of-use asset based on the remaining right-of-use asset (that is, 5,000 square feet corresponding to 50 percent of the original right-of-use asset). ##### [842-10-55-184](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-184) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:0ccbf61be572ab10473fc12bb3539d7946a3a65d8f17ba84374155639aea6df0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Fifty percent of the premodification right-of-use asset is $257,218 (50% x $514,436). Fifty percent of the premodification lease liability is $295,384 (50% x $590,767). Consequently, Lessee decreases the carrying amount of the right-of-use asset by $257,218 and the carrying amount of the lease liability by $295,384. At the effective date of the modification, Lessee recognizes the difference between the decrease in the lease liability and the decrease in the right-of-use asset of $38,166 ($295,384 − $257,218) as a gain. ##### [842-10-55-185](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-185) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:21dcd4faf8a445f1a059a30e05d82a2db4cbac20007c8a264e9e13600bd97797 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee recognizes the difference between the remaining lease liability of $295,384 and the modified lease liability of $306,098 (which equals $10,714) as an adjustment to the right-of-use asset reflecting the change in the consideration paid for the lease and the revised discount rate. ##### [842-10-55-186](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-186) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:fbffb564fbb550ddb712bf3486f09f862fa8f44aad2d59aeced0ed1baed7bc17 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee enters into a 10-year lease for 10,000 square feet of office space. The lease payments are $95,000 in Year 1, paid in arrears, and increase by $1,000 every year thereafter. The original discount rate for the lease is 6 percent. The lease is an operating lease. At the beginning of Year 6, Lessee and Lessor agree to modify the original lease for the remaining 5 years to reduce the lease payments by $7,000 each year (that is, the lease payments will be $93,000 in Year 6 and will continue to increase by $1,000 every year thereafter). The modification only changes the lease payments and, therefore, cannot be accounted for as a separate contract. The classification of the lease does not change as a result of the modification. ##### [842-10-55-187](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-187) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:79a8088a928b649fc573ff47e818ffc791977b1b79c2560f4db9e7b7ae3f3ef3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee remeasures the lease liability for the modified lease on the basis of all of the following: 1. a Remaining lease term of 5 years 2. b Payments of $93,000 in Year 6, increasing by $1,000 each year for the remainder of the lease term 3. c Lessee's incremental borrowing rate at the effective date of the modification of 7 percent. ##### [842-10-55-188](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-188) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:e3070bfd220f1b1ab55e9689bb104e76454dbef76be7b4d2345460fd7ecde4db Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The remeasured lease liability equals $388,965. Lessee recognizes the difference between the carrying amount of the modified lease liability and the lease liability immediately before the effective date of the modification of $40,206 ($429,171 premodification lease liability - $388,965 modified lease liability) as a corresponding reduction to the right-of-use asset. Therefore, the adjusted right-of-use asset equals $376,465 as of the effective date of the modification. Lessee calculates its remaining lease cost as $462,500 (the sum of the total lease payments, as adjusted for the effects of the lease modification, of $960,000 reduced by the total lease cost recognized in prior periods of $497,500), which it will recognize on a straight-line basis over the remaining lease term. ##### [842-10-55-189](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-189) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:eca9ae97ed7644b44b5c9ad064c2a64d6ee6c587bdeae942663ec81108c5e8a9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. During Year 6, Lessee recognizes lease cost of $92,500 ($462,500 remaining lease cost ÷ 5 years). As of the end of Year 6, Lessee's lease liability equals $323,193 (present value of the remaining lease payments, discounted at 7 percent), and its right-of-use asset equals $311,193 (the balance of the lease liability - the remaining accrued rent balance of $12,000). Lessee recognizes additional lease cost of $92,500 each year of the remaining lease term and measures its lease liability and right-of-use asset in the same manner as at the end of Year 6 each remaining year of the lease term. The following are the balances of the lease liability and the right-of-use asset at the end of Years 7 through 10 of the lease. - ![](https://asc.understandingaccounting.org/asc-img/GUID-16B3A26F-7489-4A89-816E-AA695240A0EF-low.gif) "Lease Liability" "Right-of-Use Asset" Year 7 " $251,816 " " $241,316 " Year 8 " $174,443 " " $166,443 " Year 9 " $90,654 " " $86,154 " Year 10 $ - $ ##### [842-10-55-190](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-190) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:2c2c067088c22e36e8df975233bb7ac5217161ab6ed6d302ed259754fb1b834b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessor enters into a 10-year lease with Lessee for 10,000 square feet of office space. The annual lease payments are $100,000 in the first year, increasing by 5 percent each year thereafter, payable in arrears. The lease term is not for a major part of the remaining economic life of the office space (40 years), and the present value of the lease payments is not substantially all of the fair value of the office space. Furthermore, the title does not transfer to Lessee as a consequence of the lease, the lease does not contain an option for Lessee to purchase the office space, and the asset is not specialized such that it clearly has an alternative use to Lessor at the end of the lease term. Consequently, the lease is classified as an operating lease. ##### [842-10-55-191](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-191) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:76e34a87ce6354a7f4472d32db1115dd117c2fbcc4ad88dd0328181ab1e10713 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the beginning of Year 6, Lessee and Lessor agree to amend the original lease for the remaining 5 years to include an additional 10,000 square feet of office space in the same building for a total annual fixed payment of $150,000. The increase in total consideration is at a discount both to the current market rate for the new 10,000 square feet of office space and in the context of that particular contract. The modified lease continues to be classified as an operating lease. ##### [842-10-55-192](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-192) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:40622e7504e0d2e8e44411c2eb02a39208132f051f0679c35dcfaa206240f486 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the effective date of the modification (at the beginning of Year 6), Lessor has an accrued lease rental asset of $76,331 (rental income recognized on a straight-line basis for the first 5 years of the lease of $628,895 \[$1,257,789 ÷ 10 years = $125,779 per year\] less lease payments for the first 5 years of $552,564 \[that is, $100,000 in Year 1, $105,000 in Year 2, $110,250 in Year 3, $115,763 in Year 4, and $121,551 in Year 5\]). ##### [842-10-55-193](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-193) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:ce1a25c753c9d005ee2b7824b5f288f5122c2dd881471362fd12a0b0eb20e182 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the change in pricing of the lease is not commensurate with the standalone price for the additional right-of-use asset, Lessor does not account for the modification as a new lease, separate from the original 10-year lease. Instead, Lessor accounts for the modified lease prospectively from the effective date of the modification, recognizing the lease payments to be made under the modified lease of $750,000 ($150,000 × 5 years), net of Lessor's accrued rent asset of $76,331, on a straight-line basis over the remaining 5-year lease term ($673,669 ÷ 5 years = $134,734 per year). At the end of the lease, Lessor will have recognized as lease income the $1,302,564 in lease payments it receives from Lessee during the 10-year lease term. ##### [842-10-55-194](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-194) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:9f5bf710d0e4060ca500ae3d9db54b6c71e4c88870e4fd8129c3a135ef86eb2b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessor enters into a four-year lease of a piece of nonspecialized equipment. The annual lease payments are $81,000 in the first year, increasing by 5 percent each year thereafter, payable in arrears. The estimated residual value of the equipment is $90,000, of which none is guaranteed. The remaining economic life of the equipment at lease commencement is seven years. The carrying amount of the equipment and its fair value are both $425,000 at the commencement date. The lease is not for a major part of the remaining economic life of the equipment, and the present value of the lease payments is not substantially all of the fair value of the equipment. Furthermore, title does not transfer to Lessee as a result of the lease, the lease does not contain an option for Lessee to purchase the underlying asset, and because the asset is nonspecialized, it is expected to have an alternative use to Lessor at the end of the lease term. Consequently, the lease is classified as an operating lease. ##### [842-10-55-195](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-195) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:a7c354963b4d1dd8cdf98482e7470abf8027a184f2c534445158c6b7feb2f0a6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the beginning of Year 3, Lessee and Lessor agree to extend the lease term by two years. That is, the modified lease is now a six-year lease, as compared with the original four-year lease. The additional two years were not an option when the original lease was negotiated. The modification alters the Lessee's right to use the equipment; it does not grant Lessee an additional right of use. Therefore, Lessor does not account for the modification as a separate contract from the original four-year lease contract. ##### [842-10-55-196](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-196) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:44cf1a7dff3f8397f0065440ca0d8fbb624b19306e7045612f34f04c74047778 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the effective date of the modification, the fair value of the equipment is $346,250, and the remaining economic life of the equipment is 5 years. The estimated residual value of the equipment is $35,000, of which none is guaranteed. The modified lease is for a major part of the remaining economic life of the equipment at the effective date of the modification (four years out of the five-year-remaining economic life of the equipment). Consequently, the modified lease is classified as a sales-type lease. ##### [842-10-55-197](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-197) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:d366a1d23703bfa1537a4f2741a5cc48d17ae1187993e929f97255fe520069aa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accounting for the modification, Lessor determines the discount rate for the modified lease (that is, the rate implicit in the modified lease) to be 7.6 percent. Lessor recognizes the net investment in the modified lease of $346,250 and derecognizes both the accrued rent and the equipment at the effective date of the modification. Lessor also recognizes, in accordance with paragraph [842-10-25-15(b)](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-15), selling profit of $34,169 ($320,139 lease receivable - $8,510 accrued rent balance - the $277,460 carrying amount of the equipment derecognized, net of the unguaranteed residual asset \[$277,460 = $303,571 - $26,111\]). After the effective date of the modification, Lessor accounts for the modified lease in the same manner as any other sales-type lease in accordance with Subtopic 842-30. ##### [842-10-55-198](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-198) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:ff696d4a62a693ae3cdb1996fdf915169d69e35e7f92ba7cbc5b521c3c26a9b0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the beginning of Year 3, Lessee and Lessor enter into a modification to extend the lease term by 1 year, and Lessee agrees to make lease payments of $108,000 per year for each of the remaining 3 years of the modified lease. No other terms of the contract are modified. Concurrent with the execution of the modification, Lessor obtains a residual value guarantee from an unrelated third party for $40,000. Consistent with Case A (paragraphs [842-10-55-194 through 55-197](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-194) ), at the effective date of the modification the fair value of the equipment is $346,250, the carrying amount of the equipment is $303,571, and Lessor's accrued rent balance is $8,510. The estimated residual value at the end of the modified lease term is $80,000. The discount rate for the modified lease is 7.356 percent. ##### [842-10-55-199](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-199) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:a415fc1c465ff57c4574e8e6680cef93af4e684de147cfe52c4595cdcb0e98cf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessor reassesses the lease classification as of the effective date of the modification and concludes that the modified lease is a direct financing lease because none of the criteria in paragraph [842-10-25-2](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2) and both criteria in paragraph [842-10-25-3(b)](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-3) are met. ##### [842-10-55-200](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-200) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:9aa06bd3dae00092040d935c3bf035176177ed58527c89daf47a3561b8cb8a5c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Therefore, at the effective date of the modification, Lessor recognizes a net investment in the modified lease of $312,081, which is the fair value of the equipment ($346,250) less the selling profit on the lease ($34,169 = $313,922 lease receivable - $8,510 accrued rent balance - the $271,243 carrying amount of the equipment derecognized, net of the unguaranteed residual asset \[$271,243 = $303,571 - $32,328\]), which is deferred as part of the net investment in the lease. After the effective date of the modification, Lessor accounts for the modified lease in the same manner as any other direct financing lease in accordance with Subtopic 842-30. ##### [842-10-55-201](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-201) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:900d7faea53738b44e7c1184f246a1d4d5d650376212d220ce254dd21a7e70ce Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessor enters into a six-year lease of a piece of new, nonspecialized equipment with a nine-year economic life. The annual lease payments are $11,000, payable in arrears. The estimated residual value of the equipment is $21,000, of which $15,000 is guaranteed by a third-party unrelated to Lessee or Lessor. The lease does not contain an option for Lessee to purchase the equipment, and the title does not transfer to Lessee as a consequence of the lease. The fair value of the equipment at lease commencement is $65,240, which is equal to its cost (and carrying amount). Lessor incurs no initial direct costs in connection with the lease. The rate implicit in the lease is 7.5 percent such that the present value of the lease payments is $51,632 and does not amount to substantially all of the fair value of the equipment. ##### [842-10-55-202](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-202) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:b965729c5e887d948c35a4c572d20fe5081fa814623758e391d0cfc69fdabf3b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The Lessor concludes that the lease is not a sales-type lease because none of the criteria in paragraph [842-10-25-2](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2) are met. However, the sum of the present value of the lease payments and the present value of the residual value of the underlying asset guaranteed by the third-party guarantor is $61,352, which is substantially all of the fair value of the equipment, and collectibility of the lease payments is probable. Consequently, the lease is classified as a direct financing lease. Lessor recognizes the net investment in the lease of $65,240 (which includes the lease receivable of $61,352 and the present value of the unguaranteed residual value of $3,888 \[the present value of the difference between the expected residual value of $21,000 and the guaranteed residual value of $15,000\]) and derecognizes the equipment with a carrying amount of $65,240. ##### [842-10-55-203](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-203) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:16166307933035ad2104d18f0c6f27f848c2b901d0830ac44638204ee97b9de3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of Year 1, Lessor receives a lease payment of $11,000 from Lessee and recognizes interest income of $4,893 ($65,240 × 7.5%). Therefore, the carrying amount of the net investment in the lease is $59,133 ($65,240 + $4,893 - $11,000). ##### [842-10-55-204](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-204) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:63257ebe32e186485e6d159eb8795ecbe85e04b0308c8479f39bc83626d14225 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of Year 1, the lease term is reduced by 1 year and the annual lease payment is reduced to $10,000 for the remaining 4 years of the modified lease term. The estimated residual value of the equipment at the end of the modified lease term is $33,000, of which $30,000 is guaranteed by the unrelated third party, while the fair value of the equipment is $56,000. The remaining economic life of the equipment is 8 years, and the present value of the remaining lease payments, discounted using the rate implicit in the modified lease of 8.857 percent, is $32,499. Lessor concludes that the modified lease is not a sales-type lease because none of the criteria in paragraph [842-10-25-2](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2) are met. However, the sum of the present value of the lease payments and the present value of the residual value of the underlying asset guaranteed by the third-party guarantor, discounted using the rate implicit in the modified lease of 8.857 percent, is $53,864, which is substantially all of the fair value of the equipment, and collectibility of the lease payments is probable. As such, the modified lease is classified as a direct financing lease. ##### [842-10-55-205](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-205) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:316c7dd6398a1d70e7fc3cd3e5eeadf1bd53d0d7f28f5efae5bb15647182840e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accounting for the modification in accordance with paragraph [842-10-25-16(a)](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-16), Lessor carries forward the balance of the net investment in the lease of $59,133 immediately before the effective date of the modification as the opening balance of the net investment in the modified lease. To retain the same net investment in the lease even while the lease payments, the lease term, and the estimated residual value have all changed, Lessor adjusts the discount rate for the lease from the rate implicit in the modified lease of 8.857 percent to 6.95 percent. This discount rate is used to calculate interest income on the net investment in the lease throughout the remaining term of the modified lease and will result, at the end of the modified lease term, in a net investment balance that equals the estimated residual value of the underlying asset of $33,000. ##### [842-10-55-206](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-206) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:0e7886f4d70e541a669a2d3646ba4a042a8cc6e5228a504a5a72207527e8dc1f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of Year 1, the lease term is extended for two years. The lease payments remain $11,000 annually, paid in arrears, for the remainder of the lease term. The estimated residual value is $6,500, of which none is guaranteed. The rate implicit in the modified lease is 7.58 percent. At the effective date of the modification, the remaining economic life of the equipment is 8 years, and the fair value of the equipment is $62,000. Because the modified lease term is now for the major part of the remaining economic life of the equipment, the modified lease is classified as a sales-type lease. ##### [842-10-55-207](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-207) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:dcc218659dea45c6caa95e9e2bbdaf87a7fe2cba6b22f900af330489564401c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On the effective date of the modification, Lessor recognizes a net investment in the sales-type lease of $62,000, which is equal to the fair value of the equipment at the effective date of the modification, and derecognizes the carrying amount of the net investment in the original direct financing lease of $59,133. The difference of $2,867 is the selling profit on the modified lease. After the effective date of the modification, Lessor accounts for the sales-type lease in the same manner as any other sales-type lease in accordance with Subtopic 842-30. ##### [842-10-55-208](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-208) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:80169cda39f45fc4a1c8cc3c64bf275a06309a15d63499d0a7fb39e309dacf9e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of Year 1, the lease term is reduced by 2 years, and the lease payments are reduced to $9,000 per year for the remaining 3-year lease term. The estimated residual value is revised to $33,000, of which only $13,000 is guaranteed by an unrelated third party. The fair value of the equipment at the effective date of the modification is $56,000. The modified lease does not transfer the title of the equipment to Lessee or grant Lessee an option to purchase the equipment. The modified lease is classified as an operating lease because it does not meet any of the criteria to be classified as a sales-type lease or as a direct financing lease. ##### [842-10-55-209](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-209) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:a4388ec891b2f229601baa3e5022b58147cfd97fce0b10c3442fbc2340c296ed Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Therefore, at the effective date of the modification, Lessor derecognizes the net investment in the lease, which has a carrying amount of $59,133, and recognizes the equipment at that amount. Collectibility of the lease payments is probable; therefore, Lessor will recognize the $27,000 ($9,000 × 3 years) in lease payments on a straight-line basis over the 3-year modified lease term, as well as depreciation on the rerecognized equipment. ##### [842-10-55-210](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-210) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:f10a68bae8141f710101416603a1680524fc4c6cff7d3268f9db73f4a9144530 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples 23 through 24 illustrate the evaluation of whether a lessee is reasonably certain to exercise an option to purchase the underlying asset. ##### [842-10-55-211](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-211) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:9b7e129a563d91b201590f852aa564e678707fda7f93d91b9872a25b263be2e2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee enters into a 5-year lease of equipment with annual lease payments of $59,000, payable at the end of each year. There are no initial direct costs incurred by Lessee or lease incentives. At the end of Year 5, Lessee has an option to purchase the equipment for $5,000. The expected residual value of the equipment at the end of the lease is $75,000. Because the exercise price of the purchase option is significantly discounted from the expected fair value of the equipment at the time the purchase option becomes exercisable, Lessee concludes that it is reasonably certain to exercise the purchase option. The fair value of the equipment at the commencement date is $250,000, and its economic life is 7 years. The discount rate for the lease, which is Lessee's incremental borrowing rate because the rate implicit in the lease is not available, is 6.5 percent. ##### [842-10-55-212](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-212) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:53dcb55e0425b76fa0d96919a0fe1fff0b2c66c488e981c0e762a26f1f3c4339 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because the lease grants Lessee an option to purchase the underlying asset that it is reasonably certain to exercise, Lessee classifies the lease as a finance lease. ##### [842-10-55-213](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-213) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:6d2a31df244437ac7d30bde244b3422394337ee20a5a27e67b5caecb34f230c4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee recognizes the lease liability at the commencement date at $248,834 (the present value of 5 payments of $59,000 + the present value of the $5,000 payment for the purchase option, discounted at 6.5%). Because there are no initial direct costs, lease incentives, or other payments made to Lessor at or before the commencement date, Lessee recognizes the right-of-use asset at the same amount as the lease liability. ##### [842-10-55-214](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-214) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:fd506a02db4351e362afa3847fc70deebf31cc088f2d9dcd5f8d8c5b2869817c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee amortizes the right-of-use asset over the seven-year expected useful life of the equipment, rather than over the lease term of five years, because Lessee is reasonably certain to exercise the option to purchase the equipment. Lessee depreciates its owned assets on a straight-line basis. Therefore, the right-of-use asset is amortized on a straight-line basis. ##### [842-10-55-215](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-215) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:4b1cdc903a0af36f51c44be621d0f86c66b6752f4504a36275ff127fe7b9e481 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. During the first year of the lease, Lessee recognizes interest expense on the lease liability of $16,174 (6.5% × $248,834) and amortization of the right-of-use asset of $35,548 ($248,834 ÷ 7). ##### [842-10-55-216](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-216) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:2a8946f1824a0d354c6638946f09d29914285bfbd1ba13fa7f0898a43f0fe919 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of Year 1, the right-of-use asset is $213,286 ($248,834 - $35,548), and the lease liability is $206,008 ($248,834 + $16,174 - $59,000). ##### [842-10-55-217](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-217) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:f36f82e90c1180c5f55d69219f7a80b06b688b1d1aa6a36eab5635e40adc1b4e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of Year 5, the carrying amount of the right-of-use asset is $71,094 ($248,834 - \[$35,548 × 5\]), and the remaining lease liability is $5,000, which is the exercise price of the purchase option. Lessee exercises the purchase option and settles the remaining lease liability. If the right-of-use asset was not previously presented together with property, plant, and equipment, Lessee reclassifies the right-of-use asset to property, plant, and equipment and applies Topic 360 to the asset beginning on the date the purchase option is exercised. ##### [842-10-55-218](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-218) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:4e3d0837db31faeb4a5cec2a0e2b346b61532ff10b5ea74ac75db087738ca720 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee enters into a 5-year lease of specialized equipment with annual lease payments of $65,000, payable in arrears. There are no initial direct costs or lease incentives. At the end of Year 5, Lessee has an option to purchase the equipment for $90,000, which is the expected fair value of the equipment at that date. Lessor constructed the equipment specifically for the needs of Lessee. Furthermore, the specialized equipment is vital to Lessee's business; without this asset, Lessee would be required to halt operations while a new asset was built or customized. As such, Lessee concludes that it is reasonably certain to exercise the purchase option because the specialized nature, specifications of the asset, and its role in Lessee's operations create a significant economic incentive for Lessee to do so. The fair value of the equipment at the commencement date is $440,000, and its economic life is 10 years. Lessee's incremental borrowing rate is 6.5 percent, which reflects the fixed rate at which Lessee could borrow an amount similar to that of the lease payments (\[$65,000 x 5 lease payments\] + the $90,000 purchase option exercise price = $415,000) in the same currency, for the same term, and with similar collateral as in the lease at the commencement date. ##### [842-10-55-219](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-219) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:229cf521d10882cc3f097a63df9ba758e2e1feebe9a8b1155cec6700614f0d32 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The lease grants Lessee an option to purchase the underlying asset that it is reasonably certain to exercise. In addition, the underlying asset is of such a specialized nature that it is expected to have no alternative use to Lessor at the end of the lease term. As such, Lessee classifies the lease as a finance lease. ##### [842-10-55-220](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-220) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:dab861fe891ee709c8273fbb486f4c7ba119e284a421c394977871e6f1641beb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee recognizes the lease liability at the commencement date at $335,808 (the present value of 5 payments of $65,000 + the present value of the $90,000 payment for the purchase option to be made at the end of Year 5, discounted at 6.5%). Because there are no initial direct costs, lease incentives, or other payments made to Lessor at or before the commencement date, Lessee recognizes the right-of-use asset at the same amount as the lease liability. ##### [842-10-55-221](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-221) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:2e7f133cfb70e15f81f6ded0e4854baaf678bae27d321125610d2484631470cd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee amortizes the right-of-use asset over the 10-year expected useful life of the equipment rather than over the lease term of 5 years, because Lessee is reasonably certain to exercise the option to purchase the equipment. Lessee depreciates its owned assets on a straight-line basis. Therefore, the right-of-use asset is amortized on a straight-line basis. ##### [842-10-55-222](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-222) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:eb125100530c58b50cef6b9872585c1f6e731c02b53e4c2177dc53f51bd64ca6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. During the first year of the lease, Lessee recognizes interest expense on the lease liability of $21,828 (6.5% × $335,808) and amortization of the right-of-use asset of $33,581 ($335,808 ÷ 10). ##### [842-10-55-223](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-223) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:6d57e14a1300238e094ca7ce83b8bf0c21adfd857f8e96bc506c0c51041f1aa5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of Year 1, the right-of-use asset is $302,227 ($335,808 - $33,581), and the lease liability is $292,636 ($335,808 + $21,828 - $65,000). ##### [842-10-55-224](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-224) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:33b9d351d5bbf412964ba22379de84f597a744ea86c03a8fedb7cc9cc880cbf4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of Year 5, the carrying amount of the right-of-use asset is $167,903 ($335,808 - $33,581 × 5), and the remaining lease liability is $90,000, which is the amount of the purchase option. Lessee exercises the option to purchase the equipment and settles the remaining lease liability. If the right-of-use asset was not previously presented together with property, plant, and equipment, Lessee reclassifies the right-of-use asset to property, plant, and equipment and will apply Topic 360 to the equipment beginning on the date the purchase option is exercised. ##### [842-10-55-225](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-225) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:a15af2bdf175adf4825d634b05b4c9f814adf99d3e6271dfa097e6a4f5a51126 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 25 illustrates how a lessee accounts for variable lease payments that depend on an index or a rate and variable lease payments that are linked to performance. ##### [842-10-55-226](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-226) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:35393725e56af783541141de43501bec6e9be64b354ca18e093451d1cfee7d8e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee enters into a 10-year lease of a building with annual lease payments of $100,000, payable at the beginning of each year. The contract specifies that lease payments for each year will increase on the basis of the increase in the Consumer Price Index for the preceding 12 months. The Consumer Price Index at the commencement date is 125. This Example ignores any initial direct costs. The lease is classified as an operating lease. ##### [842-10-55-227](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-227) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:e40eb044cb7879bff2b3ab8b931dd119c110f085f4c15d2334fb07b4aa1837b8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The rate implicit in the lease is not readily determinable. Lessee's incremental borrowing rate is 8 percent, which reflects the rate at which Lessee could borrow an amount equal to the lease payment in the same currency, over a similar term, and with similar collateral as in the lease. ##### [842-10-55-228](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-228) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:a092ff978c3f4d7d707fa75a228c9b2af9c9a6c31831989cb3a95bf9136d0922 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the commencement date, Lessee makes the lease payment for the first year and measures the lease liability at $624,689 (the present value of 9 payments of $100,000 discounted at the rate of 8 percent). The right-of-use asset is equal to the lease liability plus the prepaid rent ($724,689). ##### [842-10-55-229](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-229) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:3bb609a07e4e65234196ef3603682caa37f10c1fbec15af2c8b60752f75e9cbd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee prepares financial statements on an annual basis. Lessee determines the cost of the lease to be $1 million (the total lease payments for the lease term). The annual lease expense to be recognized is $100,000 ($1 million ÷ 10 years). ##### [842-10-55-230](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-230) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:7631cf0aa4640d8c659503e9cb960136ebe97e4d45197b2ea8b51526424a33e5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of the first year of the lease, the Consumer Price Index is 128. Lessee calculates the payment for the second year, adjusted to the Consumer Price Index, to be $102,400 ($100,000 × 128 ÷ 125). ##### [842-10-55-231](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-231) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:4bc198ff7d551ff89b3c39899182368f7bed99e2210fb0f2df9aaeb51e2a39e2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Because Lessee has not remeasured the lease liability for another reason, Lessee does not make an adjustment to the lease liability to reflect the Consumer Price Index at the end of the reporting period; that is, the lease liability continues to reflect annual lease payments of $100,000 (8 remaining annual payments of $100,000, discounted at the rate of 8 percent is $574,664). However, the Year 2 payment amount of $102,400 (the $100,000 annual fixed payment + $2,400 variable lease payment) will be recognized in profit or loss for Year 2 of the lease and classified as cash flow from operations in Lessee's statement of cash flows. In its quantitative disclosures, Lessee will include $100,000 of the $102,400 in its disclosure of operating lease cost and $2,400 in its disclosure of variable lease cost. ##### [842-10-55-232](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-232) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:b99c6204e4e1dbdc18ac30877af6c38c294271ae489dc8d51c92fc8c7f36546f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee enters into a 10-year lease of a building with annual lease payments of $100,000, payable at the beginning of each year. The contract specifies that Lessee also is required to make variable lease payments each year of the lease, which are determined as 2 percent of Lessee's sales generated from the building. ##### [842-10-55-233](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-233) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:04e0f7f6ec4bb649770dd2cbe0ffd369a34451778acb47d4d81739aa31e21ee6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the commencement date, Lessee measures the lease liability and right-of-use asset at the same amounts as in Case A (paragraphs [842-10-55-226 through 55-231](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-226) ) because the 2 percent royalty that will be paid each year to Lessor under the lease is a variable lease payment, which means that payment is not included in the measurement of the lease liability (or the right-of-use asset) at any point during the lease. ##### [842-10-55-234](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-234) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:d4e3f5f1f694b14c8f20205324276568cd2dbc319ff3eb9eec511f7785a386d9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. During the first year of the lease, Lessee generates sales of $1.2 million from the building and, therefore, recognizes total lease cost of $124,000 ($100,000 + \[2% × $1.2 million\]). In its quantitative disclosures, Lessee will include $100,000 of the $124,000 in its disclosure of operating lease cost and $24,000 in its disclosure of variable lease cost. ##### [842-10-55-235](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-235) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:78e4c573ea40fc64a8a7f0eac687931926d838f6f175e1911799bb2121ee23e4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 26 illustrates how a lessee accounts for termination penalties. ##### [842-10-55-236](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-236) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:ba8ceaefd383e93c62c20376a4c73d49c07d9f298a5ad2ad8bf04c694f88c4ed Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee enters into a 10-year lease of an asset, which it can terminate at the end of each year beginning at the end of Year 6. Lease payments are $50,000 per year during the 10-year term, payable at the beginning of each year. If Lessee terminates the lease at the end of Year 6, Lessee must pay a penalty to Lessor of $20,000. The termination penalty decreases by $5,000 in each successive year. ##### [842-10-55-237](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-237) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:6dd79c2638fe3949f501b0ed07f0efbdc1ce9147e357a66939d13c6a97d78725 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the commencement date, Lessee concludes that it is not reasonably certain it will continue to use the underlying asset after Year 6, having considered both the significance of the termination penalty (in absolute terms and in relation to the remaining lease payments after the date the termination option becomes exercisable) and the other factors in paragraph [842-10-55-26](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-26). ##### [842-10-55-238](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-238) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:95827b75b27d2adfa2a36900c7be895dbd7e1fa278da71df5bfaa67daad477fb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Accordingly, Lessee determines that the lease term is six years. At the commencement date, Lessee measures the lease liability on the basis of lease payments of $50,000 for 6 years plus the penalty of $20,000 payable at the end of Year 6. ##### [842-10-55-239](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-239) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:5e1356ddc6322497980af4d2947bc53531518368e6c5c041a862683d918aeffc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 27 illustrates initial direct costs. ##### [842-10-55-240](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-240) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:b19ef76c7597439ddbf3b8f96b1a855801b4974f782824d671f2e29063586ad8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee and Lessor enter into an operating lease. The following costs are incurred in connection with the lease: - ![](https://asc.understandingaccounting.org/asc-img/GUID-39CF0B19-60C8-4104-A694-02FAD147DE1F-low.gif) Travel costs related to lease proposal " $7,000 " External legal fees " 22,000 " "Allocation of employee costs for time negotiating lease terms and conditions " " 6,000 " Commissions to brokers " 10,000 " Total costs incurred by Lessor " $45,000 " External legal fees " $15,000 " " Allocation of employee costs for time negotiating lease terms and conditions " " 7,000 " Payments made to existing tenant to obtain the lease " 20,000 " Total costs incurred by Lessee " $42,000 " ##### [842-10-55-241](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-241) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:69deb47da04dd2f162b0e4785e21019862418c36efe4f7b9694026d5b5a99094 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessor capitalizes initial direct costs of $10,000, which it recognizes ratably over the lease term, consistent with its recognition of lease income. The $10,000 in broker commissions is an initial direct cost because that cost was incurred only as a direct result of obtaining the lease (that is, only as a direct result of the lease being executed). None of the other costs incurred by Lessor meet the definition of initial direct costs because they would have been incurred even if the lease had not been executed. For example, the employee salaries are paid regardless of whether the lease is obtained, and Lessor would be required to pay its attorneys for negotiating and drafting the lease even if Lessee did not execute the lease. ##### [842-10-55-242](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-242) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:e7ab1e693c6115024e7d0f6bb1761f0287f85a8f7be7c13b81cbaccb4d2318e4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee includes $20,000 of initial direct costs in the initial measurement of the right-of-use asset. Lessee amortizes those costs ratably over the lease term as part of its total lease cost. Throughout the lease term, any unamortized amounts from the original $20,000 are included in the measurement of the right-of-use asset. The $20,000 payment to the existing tenant is an initial direct cost because that cost is only incurred upon obtaining the lease; it would not have been owed if the lease had not been executed. None of the other costs incurred by Lessee meet the definition of initial direct costs because they would have been incurred even if the lease had not been executed (for example, the employee salaries are paid regardless of whether the lease is obtained, and Lessee would be required to pay its attorneys for negotiating and drafting the lease even if the lease was not executed). ##### [842-10-55-243](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-243) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:d93bbd8479389fc51084769294643afed01573a1dbed1742e4e14633fb62e62e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 28 illustrates lessee accounting for the transition of existing capital leases when an entity elects the transition method in paragraph [842-10-65-1(c)(1)](https://asc.understandingaccounting.org/asc/842/10/#842-10-65-1). ##### [842-10-55-244](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-244) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:77cebf4aea70c73cc823bfbc62d2097836b5e8f4356d08ffce1ce2f6f03adb0d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The effective date of the guidance in this Topic for Lessee is January 1, 20X4. Lessee enters into a 7-year lease of an asset on January 1, 20X1, with annual lease payments of $25,000 payable at the end of each year. The lease includes a residual value guarantee by Lessee of $8,190. Lessee's incremental borrowing rate on the date of commencement was 6 percent. Lessee accounts for the lease as a capital lease. At lease commencement, Lessee defers initial direct costs of $2,800, which will be amortized over the lease term. On January 1, 20X2 (and before transition adjustments), Lessee has a lease liability of $128,707, a lease asset of $124,434, and unamortized initial direct costs of $2,400. ##### [842-10-55-245](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-245) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:2261b93c5f394ce743268bef37c54d16bd9c14c995da13fb5104ad37ab9c6b80 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. January 1, 20X2 is the beginning of the earliest comparative period presented in the financial statements in which Lessee first applies the guidance in this Topic. Lessee has elected the package of practical expedients in paragraph [842-10-65-1(f)](https://asc.understandingaccounting.org/asc/842/10/#842-10-65-1). As such, Lessee accounts for the lease as a finance lease, without reassessing whether the contract contains a lease or whether classification of the lease would be different in accordance with this Topic. Lessee also does not reassess whether the unamortized initial direct costs on January 1, 20X2, would have met the definition of initial direct costs in this Topic at lease commencement. ##### [842-10-55-246](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-246) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:4a12341a7f1cae6bedfb166ab5482338f716b4af00eaf5d32373a4b1154aa5b0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On January 1, 20X2, Lessee recognizes a lease liability at the carrying amount of the capital lease obligation on December 31, 20X1, of $128,707 and a right-of-use asset at the carrying amount of the capital lease asset of $126,834 (which includes unamortized initial direct costs of $2,400 that were included in the capital lease asset). Lessee subsequently measures the lease liability and the right-of-use asset in accordance with Subtopic 840-30 until the effective date. ##### [842-10-55-247](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-247) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:56479d5d91f516bfd8468ac10740317ceeb0e2ee4349ceb09c7b0ef303c50ee4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Beginning on the effective date, Lessee applies the subsequent measurement guidance in Section 842-20-35, including the reassessment requirements, except for the requirement to reassess amounts probable of being owed under residual value guarantees. Such amounts will only be reassessed if there is a remeasurement of the lease liability for another reason, including as a result of a lease modification (that is, not accounted for as a separate contract). ##### [842-10-55-248](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-248) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:7e6fb322c89e67b8f24b56a0a13a637c9ab12fae781fa333f8e7065a2d9db488 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 29 illustrates lessee accounting for the transition of existing operating leases when an entity elects the transition method in paragraph [842-10-65-1(c)(1)](https://asc.understandingaccounting.org/asc/842/10/#842-10-65-1). ##### [842-10-55-249](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-249) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:484eef5ba3d05fd014f25e5a87d8a4fa62bd13e6f64e21c0c2bd658e140d0df1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The effective date of the guidance in this Topic for Lessee is January 1, 20X4. Lessee enters into a five-year lease of an asset on January 1, 20X1, with annual lease payments payable at the end of each year. Lessee accounts for the lease as an operating lease. At lease commencement, Lessee defers initial direct costs of $500, which will be amortized over the lease term. On January 1, 20X2 (and before transition adjustments), Lessee has an accrued rent liability of $1,200 for the lease, reflecting rent that was previously recognized as an expense but was not yet paid as of that date. Four lease payments (1 payment of $31,000 followed by 3 payments of $33,000) and unamortized initial direct costs of $400 remain. ##### [842-10-55-250](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-250) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:c54b752a3e950db246104a86ba9b951cacb662d70e44d9a31319709485a3fa7b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. January 1, 20X2 is the beginning of the earliest comparative period presented in the financial statements in which Lessee first applies the guidance in this Topic. On January 1, 20X2, Lessee's incremental borrowing rate is 6 percent. Lessee has elected the package of practical expedients in paragraph [842-10-65-1(f)](https://asc.understandingaccounting.org/asc/842/10/#842-10-65-1). As such, Lessee accounts for the lease as an operating lease, without reassessing whether the contract contains a lease or whether classification of the lease would be different in accordance with this Topic. Lessee also does not reassess whether the unamortized initial direct costs on January 1, 20X2, would have met the definition of initial direct costs in this Topic at lease commencement. ##### [842-10-55-251](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-251) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:fac79f5dc3732bac77a35bf18c9459a79f1a12d84df3137196ffe5cad9ad4bb6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On January 1, 20X2, Lessee measures the lease liability at $112,462, which is the present value of 1 payment of $31,000 and 3 payments of $33,000 discounted using the rate of 6 percent. The right-of-use asset is equal to the lease liability before adjustment for accrued rent and unamortized initial direct costs, which were not reassessed because Lessee elected the practical expedients in paragraph [842-10-65-1(f)](https://asc.understandingaccounting.org/asc/842/10/#842-10-65-1). ##### [842-10-55-252](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-252) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:bd9051ca49cb858f7988cad48aedca302f129cdbd101319c4bcac5bd97a69d42 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. On January 1, 20X2, Lessee recognizes a lease liability of $112,462 and a right-of-use asset of $111,662 ($112,462 - $1,200 + $400). ##### [842-10-55-253](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-253) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:54026e79dff5d53059705c999595460b16fb0beef6d6745104cc2f25f8a3ebe4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. From the transition date (January 1, 20X2) on, Lessee will continue to measure and recognize the lease liability at the present value of the sum of the remaining minimum rental payments (as that term was applied under Topic 840) and the right-of-use asset in accordance with this Topic. ##### [842-10-55-254](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-254) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:11.051Z to 2026-09-10T01:56:11.051Z Record version: sha256:cb1e02aa239c4a9cff06e63b83cf4f7c03c079119678c474321efcb573d45b6c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Beginning on the effective date of January 1, 20X4, Lessee applies the subsequent measurement guidance in Section 842-20-35, including the reassessment requirements.