{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/842/20/#30-initial-measurement","source":"FASB Accounting Standards Codification, Basic View","usage":"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.","topic":"842","topic_title":"Leases","subtopic":"842-20","subtopic_title":"Lessee","section":{"number":"30","label":"30 Initial Measurement","anchor":"30-initial-measurement","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"842-20-30-1","para":"30-1","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_E440B2B8-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">At the <a href=\"/glossary/c/#commencement-date-of-the-lease-commencement-date\" class=\"term\" title=\"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.\"><span>commencement date</span></a>, a <a href=\"/glossary/l/#lessee\" class=\"term\" title=\"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.\"><span>lessee</span></a> shall measure both of the following:</span></span><ol class=\"ol-norm\"><li class=\"li-norm\"><span class=\"linum\">a</span><div class=\"p\"><span class=\"sfragment\" id=\"sfr_E440B42F-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">The <a href=\"/glossary/l/#lease-liability\" class=\"term\" title=\"A lessee's obligation to make the lease payments arising from a lease, measured on a discounted basis.\"><span>lease liability</span></a> at the present value of the <a href=\"/glossary/l/#lease-payments\" class=\"term\" title=\"See paragraph 842-10-30-5 for what constitutes lease payments from the perspective of a lessee and a lessor.\"><span>lease payments</span></a> not yet paid, discounted using the <a href=\"/glossary/d/#discount-rate-for-the-lease\" class=\"term\" title=\"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.\"><span>discount rate for the lease</span></a> at lease commencement (as described in paragraphs <div class=\"xref-range displayInline\"><a href=\"/asc/842/20/#842-20-30-2\" class=\"xref\">842-20-30-2 through 30-4</a></div>) </span></span></div></li><li class=\"li-norm\"><span class=\"linum\">b</span><div class=\"p\"><span class=\"sfragment\" id=\"sfr_E440B580-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">The <a href=\"/glossary/r/#right-of-use-asset\" class=\"term\" title=\"An asset that represents a lessee's right to use an underlying asset for the lease term.\"><span>right-of-use asset</span></a> as described in paragraph <a href=\"/asc/842/20/#842-20-30-5\" class=\"xref\">842-20-30-5</a>.</span></span></div></li></ol></div></div>","snippet":"At the commencement date, a lessee shall measure both of the following:\n(a) The lease liability at the present value of the lease payments not yet paid, discounted using the discount rate for the lease at lease commencem…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5ccfc5b095bdccd18b0a404ab218c24d6c5c560220f36c2fb05abd156b84eed8","downloaded_from":"2026-09-10T01:56:41.579Z","last_downloaded_at":"2026-09-10T01:56:41.579Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479269","source_sha256":"a264ab64b6c60bebcf94557ad0149a14f52134ad842f8563260ca79d829a5c01"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:859c622077905dbea0137897c295f546c37910de878f476bace9b3a70007c29f","downloaded_from":"2026-09-10T01:56:41.579Z","last_downloaded_at":"2026-09-10T01:56:41.579Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479269","source_sha256":"a264ab64b6c60bebcf94557ad0149a14f52134ad842f8563260ca79d829a5c01"}},{"block":null,"heading":"Discount Rate for the Lease","paragraphs":[{"citation":"842-20-30-2","para":"30-2","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_E440B738-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">The <a href=\"/glossary/d/#discount-rate-for-the-lease\" class=\"term\" title=\"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.\"><span>discount rate for the lease</span></a> initially used to determine the present value of the <a href=\"/glossary/l/#lease-payments\" class=\"term\" title=\"See paragraph 842-10-30-5 for what constitutes lease payments from the perspective of a lessee and a lessor.\"><span>lease payments</span></a> for a <a href=\"/glossary/l/#lessee\" class=\"term\" title=\"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.\"><span>lessee</span></a> is calculated on the basis of information available at the <a href=\"/glossary/c/#commencement-date-of-the-lease-commencement-date\" class=\"term\" title=\"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.\"><span>commencement date</span></a>.</span></span></div></div>","snippet":"The discount rate for the lease initially used to determine the present value of the lease payments for a lessee is calculated on the basis of information available at the commencement date.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:371afc67fb8e3a80a14fb8a007ca1bd322c57e94687e092ba93723a3750263e8","downloaded_from":"2026-09-10T01:56:41.579Z","last_downloaded_at":"2026-09-10T01:56:41.579Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479269","source_sha256":"a264ab64b6c60bebcf94557ad0149a14f52134ad842f8563260ca79d829a5c01"}},{"citation":"842-20-30-3","para":"30-3","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_E440B9E3-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">A lessee should use the <a href=\"/glossary/r/#rate-implicit-in-the-lease\" class=\"term\" title=\"The rate of interest that, at a given date, causes the aggregate present value of (a) the lease paymentsand (b) the amount that a lessor expects to derive from the underlying asset following the end of the lease termto equal the sum of (1) the fair value of the underlying asset minus any related investment tax credit retained and expected to be realized by the lessor and (2) any deferred initial direct costs of the lessor. However, if the rate determined in accordance with the preceding sentence is less than zero, a rate implicit in the lease of zero shall be used.\"><span>rate implicit in the lease</span></a> whenever that rate is readily determinable. If the rate implicit in the lease is not readily determinable, a lessee uses its <a href=\"/glossary/i/#incremental-borrowing-rate\" class=\"term\" title=\"The rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.\"><span>incremental borrowing rate</span></a>. A lessee that is not a public business entity is permitted to use a risk-free discount rate for the lease </span></span><span class=\"sfragment\" id=\"sfr_E440BAFA-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">instead of its incremental borrowing rate, </span></span><span class=\"sfragment\" id=\"sfr_E440BC03-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">determined using a period comparable with that of the <a href=\"/glossary/l/#lease-term\" class=\"term\" title=\"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.\"><span>lease term</span></a>, as an accounting policy election </span></span><span class=\"sfragment\" id=\"sfr_E440BD1E-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">made by class of underlying asset.</span></span></div></div>","snippet":"A lessee should use the rate implicit in the lease whenever that rate is readily determinable. If the rate implicit in the lease is not readily determinable, a lessee uses its incremental borrowing rate. A lessee that is…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:04597f7f9a74c367f14806b942dfca8f2e2917487fef35d0c23f0ee715cc2914","downloaded_from":"2026-09-10T01:56:41.579Z","last_downloaded_at":"2026-09-10T01:56:41.579Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479269","source_sha256":"a264ab64b6c60bebcf94557ad0149a14f52134ad842f8563260ca79d829a5c01"}},{"citation":"842-20-30-4","para":"30-4","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_E440BE3E-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">See Example 2 (paragraphs <div class=\"xref-range displayInline\"><a href=\"/asc/842/20/#842-20-55-17\" class=\"xref\">842-20-55-17 through 55-20</a></div>) for an illustration of the requirements on the discount rate.</span></span></div></div>","snippet":"See Example 2 (paragraphs 842-20-55-17 through 55-20) for an illustration of the requirements on the discount rate.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1c2c74a73cdd1cf408314e85448266dfd835c1772adb731a2e2caf61106d7ff8","downloaded_from":"2026-09-10T01:56:41.579Z","last_downloaded_at":"2026-09-10T01:56:41.579Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479269","source_sha256":"a264ab64b6c60bebcf94557ad0149a14f52134ad842f8563260ca79d829a5c01"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:01e86f85b0985850daa1683d7a8d6fcc0c4514634c5caa21a493ea73083eabf2","downloaded_from":"2026-09-10T01:56:41.579Z","last_downloaded_at":"2026-09-10T01:56:41.579Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479269","source_sha256":"a264ab64b6c60bebcf94557ad0149a14f52134ad842f8563260ca79d829a5c01"}},{"block":null,"heading":"Initial Measurement of the Right-of-Use Asset","paragraphs":[{"citation":"842-20-30-5","para":"30-5","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_E440BF6B-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">At the <a href=\"/glossary/c/#commencement-date-of-the-lease-commencement-date\" class=\"term\" title=\"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.\"><span>commencement date</span></a>, the cost of the <a href=\"/glossary/r/#right-of-use-asset\" class=\"term\" title=\"An asset that represents a lessee's right to use an underlying asset for the lease term.\"><span>right-of-use asset</span></a> shall consist of all of the following:</span></span><ol class=\"ol-norm\"><li class=\"li-norm\"><span class=\"linum\">a</span><div class=\"p\"><span class=\"sfragment\" id=\"sfr_E440C113-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">The amount of the initial measurement of the <a href=\"/glossary/l/#lease-liability\" class=\"term\" title=\"A lessee's obligation to make the lease payments arising from a lease, measured on a discounted basis.\"><span>lease liability</span></a></span></span></div></li><li class=\"li-norm\"><span class=\"linum\">b</span><div class=\"p\"><span class=\"sfragment\" id=\"sfr_E440C242-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Any <a href=\"/glossary/l/#lease-payments\" class=\"term\" title=\"See paragraph 842-10-30-5 for what constitutes lease payments from the perspective of a lessee and a lessor.\"><span>lease payments</span></a> made to the <a href=\"/glossary/l/#lessor\" class=\"term\" title=\"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.\"><span>lessor</span></a> at or before the commencement date, minus any lease incentives received</span></span></div></li><li class=\"li-norm\"><span class=\"linum\">c</span><div class=\"p\"><span class=\"sfragment\" id=\"sfr_E440C396-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">Any <a href=\"/glossary/i/#initial-direct-costs\" class=\"term\" title=\"Incremental costs of a lease that would not have been incurred if the lease had not been obtained.\"><span>initial direct costs</span></a> incurred by the <a href=\"/glossary/l/#lessee\" class=\"term\" title=\"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.\"><span>lessee</span></a> (as described in paragraphs <div class=\"xref-range displayInline\"><a href=\"/asc/842/10/#842-10-30-9\" class=\"xref\">842-10-30-9 through 30-10</a></div>).</span></span></div></li></ol></div></div>","snippet":"At the commencement date, the cost of the right-of-use asset shall consist of all of the following:\n(a) The amount of the initial measurement of the lease liability\n(b) Any lease payments made to the lessor at or before …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:11a22e13e976a31187d5004b15fa80d6e5521746addfd0e4204bd87122e4c800","downloaded_from":"2026-09-10T01:56:41.579Z","last_downloaded_at":"2026-09-10T01:56:41.579Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479269","source_sha256":"a264ab64b6c60bebcf94557ad0149a14f52134ad842f8563260ca79d829a5c01"}},{"citation":"842-20-30-6","para":"30-6","html":"<div class=\"asc-body\"><div class=\"norm-text\"><span class=\"sfragment\" id=\"sfr_E440C4C8-6E92-1014-A13F-6E4B94C84136\"><span class=\"sfragment-source\">See Example 3 (paragraphs <div class=\"xref-range displayInline\"><a href=\"/asc/842/20/#842-20-55-21\" class=\"xref\">842-20-55-21 through 55-39</a></div>) for an illustration of the requirements on lessee measurement of the <a href=\"/glossary/l/#lease-term\" class=\"term\" title=\"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.\"><span>lease term</span></a>.</span></span></div></div>","snippet":"See Example 3 (paragraphs 842-20-55-21 through 55-39) for an illustration of the requirements on lessee measurement of the lease term.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1d325ef6aada938309e3e5e883f9fdf6652e296aa819c095a3943be546b06ecf","downloaded_from":"2026-09-10T01:56:41.579Z","last_downloaded_at":"2026-09-10T01:56:41.579Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479269","source_sha256":"a264ab64b6c60bebcf94557ad0149a14f52134ad842f8563260ca79d829a5c01"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:cd0e98d1782f5951aacb23251420c9602e90b968f38e9b00f11687a77286f3af","downloaded_from":"2026-09-10T01:56:41.579Z","last_downloaded_at":"2026-09-10T01:56:41.579Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not 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