# ASC 842-10-65: Leases — Overall — 65 Transition and Open Effective Date Information
Source: FASB Accounting Standards Codification, Basic View
[Read online](https://asc.understandingaccounting.org/asc/842/10/#65-transition-and-open-effective-date-information)
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): 2026-09-10T01:56:14.090Z to 2026-09-10T01:56:14.090Z
Record version: sha256:fbda7266a519fe062bcb57121005f2aee502e6320a265a4e4cff9b6c5aeed95e
Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f
Effective as of: not established by retrieval timestamps.
## ASC 842-10-65: 65 Transition and Open Effective Date Information
[Read section](https://asc.understandingaccounting.org/asc/842/10/#65-transition-and-open-effective-date-information)
SEC content: no
#### Transition Related to Accounting Standards Updates No. 2016-02, Leases (Topic 842), No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842, No. 2018-10, Codification Improvements to Topic 842, Leases, No. 2018-11, Leases (Topic 842): Targeted Improvements, No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, No. 2019-01, Leases (Topic 842): Codification Improvements, No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), Leases (Topic 842): Effective Dates, No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, No. 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments, No. 2021-09, Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities, and No. 2023-01, Leases (Topic 842): Common Control Arrangements
##### [842-10-65-1](https://asc.understandingaccounting.org/asc/842/10/#842-10-65-1)
Pending content: no
Source downloaded (UTC): 2026-09-10T01:56:14.090Z to 2026-09-10T01:56:14.090Z
Record version: sha256:51cb62453278b652d226f20b7771e93ba52c63614a37404da18ffafc8a5ee3c2
Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f
Effective as of: not established by retrieval timestamps.
The following represents the transition and effective date information related to Accounting Standards Updates No. 2016-02, _Leases (Topic 842)_, No. 2018-01, _Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842,_ No. 2018-10, _Codification Improvements to Topic 842, Leases,_No. 2018-11, _Leases (Topic 842): Targeted Improvements_, No. 2018-20, _Leases (Topic 842): Narrow-Scope Improvements for Lessors_, No. 2019-01, _Leases (Topic 842): Codification Improvements_, No. 2019-10, _Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates_, No. 2020-05, _Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities_, No. 2021-05, _Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments_, No. 2021-09, _Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities_, and No. 2023-01, _Leases (Topic 842): Common Control Arrangements:_ \[**Note**: See paragraph [842-10-S65-1](https://asc.understandingaccounting.org/asc/842/10/#842-10-S65-1) for an SEC Staff Announcement on transition related to Update 2016-02.\]
- 1. a
A [public business entity](https://asc.understandingaccounting.org/glossary/p/#public-business-entity "A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing). It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market. It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion. An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity's filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC."), a [not-for-profit entity](https://asc.understandingaccounting.org/glossary/n/#not-for-profit-entity "An entity that possesses the following characteristics, in varying degrees, that distinguish it from a business entity: Contributions of significant amounts of resources from resource providers who do not expect commensurate or proportionate pecuniary return Operating purposes other than to provide goods or services at a profit Absence of ownership interests like those of business entities. Entities that clearly fall outside this definition include the following: All investor-owned entities Entities that provide dividends, lower costs, or other economic benefits directly and proportionately to their owners, members, or participants, such as mutual insurance entities, credit unions, farm and rural electric cooperatives, and employee benefit plans.") that has issued or is a conduit bond obligor for securities that are traded, listed, or quoted on an exchange or an over-the-counter market (with an exception for those entities that have not yet issued their financial statements or made financial statements available for issuance as described in the following sentence), and an employee benefit plan that files or furnishes financial statements with or to the U.S. Securities and Exchange Commission shall apply the pending content that links to this paragraph for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. A not-for-profit entity that has issued or is a conduit bond obligor for securities that are traded, listed, or quoted on an exchange or an over-the-counter market that has not yet issued financial statements or made financial statements available for issuance as of June 3, 2020 shall apply the pending content that links to this paragraph for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Earlier application is permitted.
2. b
All other entities shall apply the pending content that links to this paragraph for financial statements issued for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Earlier application is permitted.
3. c
In the financial statements in which an entity first applies the pending content that links to this paragraph, the entity shall recognize and measure [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.") within the scope of the pending content that links to this paragraph that exist at the application date, as determined by the transition method that the entity elects. An entity shall apply the pending content that links to this paragraph using one of the following two methods:
1. 1
Retrospectively to each prior reporting period presented in the financial statements with the cumulative effect of initially applying the pending content that links to this paragraph recognized at the beginning of the earliest comparative period presented, subject to the guidance in (d) through (gg). Under this transition method, the application date shall be the later of the beginning of the earliest period presented in the financial statements and the [commencement date of the lease](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.").
2. 2
Retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment, subject to the guidance in (d) through (gg). Under this transition method, the application date shall be the beginning of the reporting period in which the entity first applies the pending content that links to this paragraph.
4. d
An entity shall adjust equity and, if the entity elects the transition method in (c)(1), the other comparative amounts disclosed for each prior period presented in the financial statements, as if the pending content that links to this paragraph had always been applied, subject to the requirements in (e) through (gg).
5. e
If 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.") elects not to apply the recognition and measurement requirements in the pending content that links to this paragraph to [short-term leases](https://asc.understandingaccounting.org/glossary/s/#short-term-lease "A lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise."), the lessee shall not apply the approach described in (k) through (t) to short-term leases.
See Examples 28 through 29 (paragraphs
[842-10-55-243 through 55-254](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-243)
) for illustrations of the transition requirements for an entity that applies the pending content that links to this paragraph in accordance with (c)(1).
**Practical expedients**
- 1. f
An entity may elect the following practical expedients, which must be elected as a package and applied consistently by an entity to all of its leases (including those for which the entity is 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.")), when applying the pending content that links to this paragraph to leases that commenced before the effective date:
1. 1
An entity need not reassess whether any expired or existing [contracts](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") are or contain leases.
2. 2
An entity need not reassess the lease classification for any expired or existing leases (for example, all existing leases that were 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.") in accordance with Topic 840 will be classified as operating leases, and all existing leases that were classified as capital leases in accordance with Topic 840 will be classified as [finance leases](https://asc.understandingaccounting.org/glossary/f/#finance-lease "From the perspective of a lessee, a lease that meets one or more of the criteria in paragraph 842-10-25-2.")).
3. 3
An entity need not reassess [initial direct costs](https://asc.understandingaccounting.org/glossary/i/#initial-direct-costs "Incremental costs of a lease that would not have been incurred if the lease had not been obtained.") for any existing leases.
2. g
An entity also may elect a practical expedient, which must be applied consistently by an entity to all of its leases (including those for which the entity is a lessee or a lessor) to use hindsight in 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.") (that is, when considering lessee options to extend or terminate the lease and 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.")) and in assessing impairment of the entity's [right-of-use assets](https://asc.understandingaccounting.org/glossary/r/#right-of-use-asset "An asset that represents a lessee's right to use an underlying asset for the lease term."). This practical expedient may be elected separately or in conjunction with either one or both of the practical expedients in (f) and (gg).
3. gg
An entity also may elect a practical expedient to not assess whether existing or expired land easements that were not previously accounted for as leases under Topic 840 are or contain a lease under this Topic. For purposes of (gg), a land easement (also commonly referred to as a right of way) refers to a right to use, access, or cross another entity's land for a specified purpose. This practical expedient shall be applied consistently by an entity to all its existing and expired land easements that were not previously accounted for as leases under Topic 840. This practical expedient may be elected separately or in conjunction with either one or both of the practical expedients in (f) and (g). An entity that elects this practical expedient for existing or expired land easements shall apply the pending content that links to this paragraph to land easements entered into (or modified) on or after the date that the entity first applies the pending content that links to this paragraph as described in (a) and (b). An entity that previously accounted for existing or expired land easements as leases under Topic 840 shall not be eligible for this practical expedient for those land easements.
**Amounts previously recognized in respect of business combinations**
- 1. h
If an entity has previously recognized an asset or a liability in accordance with Topic 805 on [business combinations](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.") relating to favorable or unfavorable terms of an operating lease acquired as part of a business combination, the entity shall do all of the following:
1. 1
Derecognize that asset and liability (except for those arising from leases that are classified as operating leases in accordance with Topic 842 for which the entity is a lessor).
2. 2
Adjust the carrying amount of the right-of-use asset by a corresponding amount if the entity is a lessee.
3. 3
Make a corresponding adjustment to equity if assets or liabilities arise from leases that are classified as [sales-type leases](https://asc.understandingaccounting.org/glossary/s/#sales-type-lease "From the perspective of a lessor, a lease that meets one or more of the criteria in paragraph 842-10-25-2 and is not an operating lease in accordance with paragraph 842-10-25-3A.") or [direct financing leases](https://asc.understandingaccounting.org/glossary/d/#direct-financing-leases "Glossary term superseded by Accounting Standards Update No. 2016-02.") in accordance with Topic 842 for which the entity is a lessor. Also see (w).
**Disclosure**
- 1. i
An entity shall provide the transition disclosures required by Topic 250 on accounting changes and error corrections, except for the requirements in paragraph [250-10-50-1(b)(2)](https://asc.understandingaccounting.org/asc/250/10/#250-10-50-1)and paragraph [250-10-50-3](https://asc.understandingaccounting.org/asc/250/10/#250-10-50-3). An entity that elects the transition method in (c)(2) shall provide the transition disclosures in paragraph [250-10-50-1(b)(3)](https://asc.understandingaccounting.org/asc/250/10/#250-10-50-1) as of the beginning of the period of adoption rather than at the beginning of the earliest period presented.
- **Note:** See paragraph [250-10-S99-6](https://asc.understandingaccounting.org/asc/250/10/#250-10-S99-6) on disclosure of the impact that recently issued accounting standards will have on the financial statements of a registrant.
2. j
If an entity uses one or more of the practical expedients in (f), (g), and (gg), it shall disclose that fact.
3. jj
An entity electing the transition method in (c)(2) shall provide the required Topic 840 disclosures for all periods that continue to be in accordance with Topic 840.
**Lessees**
**Leases previously classified as operating leases under Topic 840**
- 1. k
A lessee shall initially recognize a right-of-use asset and a [lease liability](https://asc.understandingaccounting.org/glossary/l/#lease-liability "A lessee's obligation to make the lease payments arising from a lease, measured on a discounted basis.") at the application date as determined in (c).
2. l
Unless, on or after the effective date, the lease is modified (and that modification is not accounted for as a separate contract in accordance with paragraph [842-10-25-8](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-8)) or the lease liability is required to be remeasured in accordance with paragraph [842-20-35-4](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-4), a lessee shall measure the lease liability at the present value of the sum of the following, using a [discount rate for the lease](https://asc.understandingaccounting.org/glossary/d/#discount-rate-for-the-lease "For a lessee, the discount rate for the lease is the rate implicit in the lease unless that rate cannot be readily determined. In that case, the lessee is required to use its incremental borrowing rate. For a lessor, the discount rate for the lease is the rate implicit in the lease.") (which, for entities that are not public business entities, can be a risk-free rate determined in accordance with paragraph [842-20-30-3](https://asc.understandingaccounting.org/asc/842/20/#842-20-30-3)) established at the application date as determined in (c):
1. 1
The remaining minimum rental payments (as defined under Topic 840).
2. 2
Any amounts [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") of being owed by the lessee under a [residual value guarantee](https://asc.understandingaccounting.org/glossary/r/#residual-value-guarantee "A guarantee made to a lessor that the value of an underlying asset returned to the lessor at the end of a lease will be at least a specified amount.").
3. m
For each lease classified as an operating lease in accordance with paragraphs
[842-10-25-2 through 25-3](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2)
, a lessee shall initially measure the right-of-use asset at the initial measurement of the lease liability adjusted for both of the following:
1. 1
The items in paragraph [842-20-35-3(b)](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-3), as applicable.
2. 2
The carrying amount of any liability recognized in accordance with Topic 420 on exit or disposal cost obligations for the lease.
4. n
For each lease classified as an operating lease in accordance with paragraphs
[842-10-25-2 through 25-3](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2)
, a lessee shall subsequently measure the right-of-use asset throughout the remaining lease term in accordance with paragraph [842-20-35-3(b)](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-3). If the initial measurement of the right-of-use asset in (m) is adjusted for the carrying amount of a liability recognized in accordance with Topic 420 on exit or disposal cost obligations for the lease, the lessee shall apply the recognition and subsequent measurement guidance in Sections 842-20-25 and 842-20-35, respectively, when the right-of-use asset has been impaired.
5. o
For each lease classified as a finance lease in accordance with paragraph [842-10-25-2](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-2), a lessee shall measure the right-of-use asset as the applicable proportion of the lease liability at the commencement date, which can be imputed from the lease liability determined in accordance with (l). The applicable proportion is the remaining lease term at the application date as determined in (c) relative to the total lease term. A lessee shall adjust the right-of-use asset recognized by the carrying amount of any prepaid or accrued [lease payments](https://asc.understandingaccounting.org/glossary/l/#lease-payments "See paragraph 842-10-30-5 for what constitutes lease payments from the perspective of a lessee and a lessor.") and the carrying amount of any liability recognized in accordance with Topic 420 for the lease.
6. p
If a lessee does not elect the practical expedients described in (f), any unamortized initial direct costs that do not meet the definition of initial direct costs in this Topic shall be written off as an adjustment to equity unless the entity elects the transition method in (c)(1) and the costs were incurred after the beginning of the earliest period presented, in which case those costs shall be written off as an adjustment to earnings in the period the costs were incurred.
7. q
If a modification to the contractual terms and conditions occurs on or after the effective date, and the modification does not result in a separate contract in accordance with paragraph [842-10-25-8](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-8), or the lessee is required to remeasure the lease liability for any reason (see paragraphs
[842-20-35-4 through 35-5](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-4)
), the lessee shall follow the requirements in this Topic from the [effective date of the modification](https://asc.understandingaccounting.org/glossary/e/#effective-date-of-the-modification "The date that a lease modification is approved by both the lessee and the lessor.") or the remeasurement date.
**Leases previously classified as capital leases under Topic 840**
- 1. r
For each lease classified as a finance lease in accordance with this Topic, a lessee shall do all of the following:
1. 1
Recognize a right-of-use asset and a lease liability at the carrying amount of the lease asset and the capital lease obligation in accordance with Topic 840 at the application date as determined in (c).
2. 2
Include any unamortized initial direct costs that meet the definition of initial direct costs in this Topic in the measurement of the right-of-use asset established in (r)(1).
3. 3
If a lessee does not elect the practical expedients described in (f), write off any unamortized initial direct costs that do not meet the definition of initial direct costs in this Topic and that are not included in the measurement of the capital lease asset under Topic 840 as an adjustment to equity unless the entity elects the transition method in (c)(1) and the costs were incurred after the beginning of the earliest period presented, in which case those costs shall be written off as an adjustment to earnings in the period the costs were incurred.
4. 4
If an entity elects the transition method in (c)(1), subsequently measure the right-of-use asset and the lease liability in accordance with Section 840-30-35 before the effective date.
5. 5
Regardless of the transition method selected in (c), apply the subsequent measurement guidance in paragraphs
[842-20-35-4 through 35-5](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-4)
and [842-20-35-8](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-8) after the effective date. However, when applying the pending content in paragraph [842-20-35-4](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-4), a lessee shall not remeasure the lease payments for amounts probable of being owed under residual value guarantees in accordance with paragraph [842-10-35-4(c)(3)](https://asc.understandingaccounting.org/asc/842/10/#842-10-35-4).
6. 6
Classify the assets and liabilities held under capital leases as right-of-use assets and lease liabilities arising from finance leases for the purposes of presentation and disclosure.
2. s
For each lease classified as an operating lease in accordance with this Topic, a lessee shall do the following:
1. 1
Derecognize the carrying amount of any capital lease asset and capital lease obligation in accordance with Topic 840 at the application date as determined in (c). Any difference between the carrying amount of the capital lease asset and the capital lease obligation shall be accounted for in the same manner as prepaid or accrued rent.
2. 2
If an entity elects the transition method in (c)(1) and the lease commenced before the beginning of the earliest period presented in the financial statements or if the entity elects the transition method in (c)(2), recognize a right-of-use asset and a lease liability in accordance with paragraph [842-20-35-3](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-3)at the application date as determined in (c).
3. 3
If an entity elects the transition method in (c)(1) and the lease commenced after the beginning of the earliest period presented in the financial statements, recognize a right-of-use asset and a lease liability in accordance with paragraph [842-20-30-1](https://asc.understandingaccounting.org/asc/842/20/#842-20-30-1) at the commencement date of the lease.
4. 4
Account for the operating lease in accordance with the guidance in Subtopic 842-20 after initial recognition in accordance with (s)(2) or (s)(3).
5. 5
Write off any unamortized initial direct costs that do not meet the definition of initial direct costs in this Topic as an adjustment to equity unless the entity elects the transition method in (c)(1) and the costs were incurred after the beginning of the earliest period presented, in which case those costs shall be written off as an adjustment to earnings in the period the costs were incurred.
3. t
If a modification to the contractual terms and conditions occurs on or after the effective date, and the modification does not result in a separate contract in accordance with paragraph [842-10-25-8](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-8), or the lessee is required to remeasure the lease liability in accordance with paragraph [842-20-35-4](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-4), the lessee shall subsequently account for the lease in accordance with the requirements in this Topic beginning on the effective date of the modification or the remeasurement date.
**Build-to-suit lease arrangements**
- 1. u
A lessee shall apply a modified retrospective transition approach for leases accounted for as build-to-suit arrangements under Topic 840 that are existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements (if an entity elects the transition method in (c)(1)) or that are existing at the beginning of the reporting period in which the entity first applies the pending content that links to this paragraph (if an entity elects the transition method in (c)(2)) as follows:
1. 1
If an entity has recognized assets and liabilities solely as a result of a transaction's build-to-suit designation in accordance with Topic 840, the entity shall do the following:
1. i
If an entity elects the transition method in (c)(1), the entity shall derecognize those assets and liabilities at the later of the beginning of the earliest comparative period presented in the financial statements and the date that the lessee is determined to be the accounting owner of the asset in accordance with Topic 840.
2. ii
If an entity elects the transition method in (c)(2), the entity shall derecognize those assets and liabilities at the beginning of the reporting period in which the entity first applies the pending content that links to this paragraph.
3. iii
Any difference in (i) or (ii) shall be recorded as an adjustment to equity at the date that those assets and liabilities were derecognized in accordance with (u)(1)(i) or (ii).
4. iv
The lessee shall apply the lessee transition requirements in (k) through (t) to the lease.
2. 2
If the construction period of the build-to-suit lease concluded before the beginning of the earliest comparative period presented in the financial statements (if the entity elects the transition method in (c)(1)) or if it concluded before the beginning of the reporting period in which the entity first applies the pending content that links to this paragraph (if the entity elects the transition method in (c)(2)), and the transaction qualified as a sale and leaseback transaction in accordance with Subtopic 840-40 before that date, the entity shall follow the general lessee transition requirements for the lease.
**Lessors**
**Leases previously classified as operating leases under Topic 840**
- 1. v
For each lease classified as an operating lease in accordance with this Topic, a lessor shall do all of the following:
1. 1
Continue to recognize the carrying amount of the underlying asset and any lease assets or liabilities at the application date as determined in (c) as the same amounts recognized by the lessor immediately before that date in accordance with Topic 840.
2. 2
Account for previously recognized securitized receivables as secured borrowings in accordance with other Topics.
3. 3
If a lessor does not elect the practical expedients described in (f), write off any unamortized initial direct costs that do not meet the definition of initial direct costs in this Topic as an adjustment to equity unless the entity elects the transition method in (c)(1) and the costs were incurred after the beginning of the earliest period presented, in which case those costs shall be written off as an adjustment to earnings in the period the costs were incurred.
2. w
For each lease classified as a direct financing or a sales-type lease in accordance with this Topic, the objective is to account for the lease, beginning on the application date as determined in (c) as if it had always been accounted for as a direct financing lease or a sales-type lease in accordance with this Topic. Consequently, a lessor shall do all of the following:
1. 1
Derecognize the carrying amount of the underlying asset at the application date as determined in (c).
2. 2
Recognize a [net investment in the lease](https://asc.understandingaccounting.org/glossary/n/#net-investment-in-the-lease "For a sales-type lease, the sum of the lease receivable and the unguaranteed residual asset. For a direct financing lease, the sum of the lease receivable and the unguaranteed residual asset, net of any deferred selling profit.") at the application date as determined in (c)as if the lease had been accounted for as a direct financing lease or a sales-type lease in accordance with Subtopic 842-30 since lease commencement.
3. 3
Record any difference between the amounts in (w)(1) and (w)(2) as follows:
1. i
If an entity elects the transition method in (c)(1), as an adjustment to equity (if the commencement date of the lease was before the beginning of the earliest period presented or if the lease was acquired as part of a business combination; see also (h)(3)) or earnings (if the commencement date of the lease was on or after the beginning of the earliest period presented).
2. ii
If an entity elects the transition method in (c)(2), as an adjustment to equity.
4. 4
Account for the lease in accordance with this Topic after the application date as determined in (c).
**Leases previously classified as direct financing or sales-type leases under Topic 840**
- 1. x
For each lease classified as a direct financing lease or a sales-type lease in accordance with this Topic, do all of the following:
1. 1
Continue to recognize a net investment in the lease at the application date as determined in (c) at the carrying amount of the net investment at that date. This would include any unamortized initial direct costs capitalized as part of the lessor's net investment in the lease in accordance with Topic 840.
2. 2
If an entity elects the transition method in (c)(1), before the effective date, a lessor shall account for the lease in accordance with Topic 840.
3. 3
Regardless of the transition method selected in (c), beginning on the effective date, a lessor shall account for the lease in accordance with the recognition, subsequent measurement, presentation, and disclosure guidance in Subtopic 842-30.
4. 4
Beginning on the effective date, if a lessor modifies the lease (and the modification is not accounted for as a separate contract in accordance with paragraph [842-10-25-8](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-8)), it shall account for the modified lease in accordance with paragraph [842-10-25-16](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-16) if the lease is classified as a direct financing lease before the modification or paragraph [842-10-25-17](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-17) if the lease is classified as a sales-type lease before the modification. A lessor shall not remeasure the net investment in the lease on or after the effective date unless the lease is modified (and the modification is not accounted for as a separate contract in accordance with paragraph [842-10-25-8](https://asc.understandingaccounting.org/asc/842/10/#842-10-25-8)).
2. y
For each lease classified as an operating lease in accordance with this Topic, the objective is to account for the lease, beginning on the application date as determined in (c), as if it had always been accounted for as an operating lease in accordance with this Topic. Consequently, a lessor shall do all of the following:
1. 1
Recognize the underlying asset at what the carrying amount would have been had the lease been classified as an operating lease under Topic 840.
2. 2
Derecognize the carrying amount of the net investment in the lease.
3. 3
Record any difference between the amounts in (y)(1) and (y)(2) as follows:
1. i
If an entity elects the transition method in (c)(1), as an adjustment to equity (if the commencement date of the lease was before the beginning of the earliest period presented or if the lease was acquired as part of a business combination) or earnings (if the commencement date of the lease was on or after the beginning of the earliest period presented).
2. ii
If an entity elects the transition method in (c)(2), as an adjustment to equity.
4. 4
Subsequently account for the operating lease in accordance with this Topic and the underlying asset in accordance with other Topics.
**Leases previously classified as leveraged leases under Topic 840**
- 1. z
For leases that were classified as [leveraged leases](https://asc.understandingaccounting.org/glossary/l/#leveraged-lease "From the perspective of a lessor, a lease that was classified as a leveraged lease in accordance with the leases guidance in effect before the effective date and for which the commencement date is before the effective date.") in accordance with Topic 840, and for which the commencement date is before the effective date, a lessor shall apply the requirements in Subtopic 842-50. If a leveraged lease is modified on or after the effective date, it shall be accounted for as a new lease as of the effective date of the modification in accordance with the guidance in Subtopics 842-10 and 842-30.
1. 1
A lessor shall apply the pending content that links to this paragraph to a leveraged lease that meets the criteria in (z) that is acquired in a business combination 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.") on or after the effective date.
**Sale and leaseback transactions before the effective date**
- 1. aa
If a previous sale and leaseback transaction was accounted for as a sale and a leaseback in accordance with Topic 840, an entity shall not reassess the transaction to determine whether the transfer of the asset would have been a sale in accordance with paragraphs
[842-40-25-1 through 25-3](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-1)
.
2. bb
If a previous sale and leaseback transaction was accounted for as a failed sale and leaseback transaction in accordance with Topic 840 and remains a failed sale at the effective date:
1. 1
If an entity elects the transition method in (c)(1), the entity shall reassess whether a sale would have occurred at any point on or after the beginning of the earliest period presented in the financial statements in accordance with paragraphs
[842-40-25-1 through 25-3](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-1)
. The sale and leaseback transaction shall be accounted for on a modified retrospective basis from the date a sale is determined to have occurred.
2. 2
If an entity elects the transition method in (c)(2), the entity shall reassess whether a sale would have occurred at the beginning of the reporting period in which the entity first applies the pending content that links to this paragraph in accordance with paragraphs
[842-40-25-1 through 25-3](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-1)
and recognize the sale as an adjustment to equity. The entity shall then account for the leaseback in accordance with the guidance in Subtopic 842-20 after the beginning of the reporting period in which the entity first applies the pending content that links to this paragraph.
3. cc
An entity shall account for the leaseback in accordance with the lessee and lessor transition requirements in (k) through (y).
4. dd
If a previous sale and leaseback transaction was accounted for as a sale and capital leaseback in accordance with Topic 840, the transferor shall continue to recognize any deferred gain or loss that exists at the later of the beginning of the earliest comparative period presented in the financial statements and the date of the sale of the underlying asset (if an entity elects the transition method in (c)(1)) or that exists at the beginning of the reporting period in which the entity first applies the pending content that links to this paragraph (if an entity elects the transition method in (c)(2)), as follows:
1. 1
If the underlying asset is land only, straight line over the remaining lease term.
2. 2
If the underlying asset is not land only and the leaseback is a finance lease, in proportion to the amortization of the right-of-use asset.
3. 3
If the underlying asset is not land only and the leaseback is an operating lease, in proportion to the recognition in profit or loss of the total lease cost.
5. ee
If a previous sale and leaseback transaction was accounted for as a sale and operating leaseback in accordance with Topic 840, the transferor shall do the following:
1. 1
Recognize any deferred gain or loss not resulting from off-market terms (that is, where the consideration for the sale of the asset is not at [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.") or the lease payments are not at market rates) as a cumulative-effect adjustment to equity unless the entity elects the transition method in (c)(1) and the date of sale is after the beginning of the earliest period presented, in which case any deferred gain or loss not resulting from off-market terms shall be recognized in earnings in the period the sale occurred.
2. 2
Recognize any deferred loss resulting from the consideration for the sale of the asset not being at fair value or the lease payments not being at market rates as an adjustment to the leaseback right-of-use asset at the later of the beginning of the earliest comparative period presented in the financial statements and the date of the sale of the underlying asset (if an entity elects the transition method in (c)(1)) or at the beginning of the reporting period in which the entity first applies the pending content that links to this paragraph (if an entity elects the transition method in (c)(2)).
3. 3
Recognize any deferred gain resulting from the consideration for the sale of the asset not being at fair value or the lease payments not being at market rates as a financial liability at the later of the beginning of the earliest comparative period presented in the financial statements and the date of the sale of the underlying asset (if an entity elects the transition method in (c)(1)) or at the beginning of the reporting period in which the entity first applies the pending content that links to this paragraph (if an entity elects the transition method in (c)(2)).
##### [842-10-65-2](https://asc.understandingaccounting.org/asc/842/10/#842-10-65-2)
Pending content: no
Source downloaded (UTC): 2026-09-10T01:56:14.090Z to 2026-09-10T01:56:14.090Z
Record version: sha256:69a951a060904a91a3b10f5bfc5029bbaa76bb13a6b3cf61ccdb7066c19ff99b
Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f
Effective as of: not established by retrieval timestamps.
Paragraph superseded on 06/30/2025 after the end of the transition period stated in Accounting Standards Update No. 2018-11, _Leases (Topic 842): Targeted Improvements_.
##### [842-10-65-3](https://asc.understandingaccounting.org/asc/842/10/#842-10-65-3)
Pending content: no
Source downloaded (UTC): 2026-09-10T01:56:14.090Z to 2026-09-10T01:56:14.090Z
Record version: sha256:ad35891411c2043a8c75255fafc8c23f218be147b7af54441123caff15112454
Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f
Effective as of: not established by retrieval timestamps.
Paragraph superseded on 06/30/2025 after the end of the transition period stated in Accounting Standards Update No. 2018-20, _Leases (Topic 842): Narrow-Scope Improvements for Lessors_.
##### [842-10-65-4](https://asc.understandingaccounting.org/asc/842/10/#842-10-65-4)
Pending content: no
Source downloaded (UTC): 2026-09-10T01:56:14.090Z to 2026-09-10T01:56:14.090Z
Record version: sha256:ba675b417f7f86430b8e0d66eb9b29d8b8d93c7c5667327ff333af2ed23c795e
Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f
Effective as of: not established by retrieval timestamps.
Paragraph superseded on 06/30/2025 after the end of the transition period stated in Accounting Standards Updates No. 2019-01, _Leases (Topic 842): Codification Improvements_, No. 2019-10, _Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates_, and No. 2020-05, _Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities_.
##### [842-10-65-5](https://asc.understandingaccounting.org/asc/842/10/#842-10-65-5)
Pending content: no
Source downloaded (UTC): 2026-09-10T01:56:14.090Z to 2026-09-10T01:56:14.090Z
Record version: sha256:1f0945fdf54b9578b5067efa668a7fe47d3d029a1da7e21f08f8d8ee7aba462e
Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f
Effective as of: not established by retrieval timestamps.
Paragraph superseded on 06/30/2025 after the end of the transition period stated in Accounting Standards Update No. 2021-05, _Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments_.
##### [842-10-65-6](https://asc.understandingaccounting.org/asc/842/10/#842-10-65-6)
Pending content: no
Source downloaded (UTC): 2026-09-10T01:56:14.090Z to 2026-09-10T01:56:14.090Z
Record version: sha256:37a0918629eade7f58c0e14fd880d2961fab5598c870182d9a9201be103008d2
Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f
Effective as of: not established by retrieval timestamps.
Paragraph superseded on 06/30/2025 after the end of the transition period stated in Accounting Standards Update No. 2021-09, _Leases (Topic 842): Discount Rate for Lessees That Are Not Public Business Entities_.
##### [842-10-65-7](https://asc.understandingaccounting.org/asc/842/10/#842-10-65-7)
Pending content: no
Source downloaded (UTC): 2026-09-10T01:56:14.090Z to 2026-09-10T01:56:14.090Z
Record version: sha256:3e67ef52ba71d5ad656fb3213b05f786574fa82700e22f04a719e1857a7d3f16
Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f
Effective as of: not established by retrieval timestamps.
Paragraph superseded on 06/30/2025 after the end of the transition period stated in Accounting Standards Update No. 2023-01, _Leases (Topic 842): Common Control Arrangements_.
##### [842-10-65-8](https://asc.understandingaccounting.org/asc/842/10/#842-10-65-8)
Pending content: no
Source downloaded (UTC): 2026-09-10T01:56:14.090Z to 2026-09-10T01:56:14.090Z
Record version: sha256:c5850cdee382be5ac9b4bea428341e09f0055712eda159fba597df3e7c2e2b82
Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f
Effective as of: not established by retrieval timestamps.
Paragraph superseded on 06/30/2025 after the end of the transition period stated in Accounting Standards Update No. 2023-01, _Leases (Topic 842): Common Control Arrangements_.