# ASC 842-20-35: Leases — Lessee — 35 Subsequent Measurement Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/842/20/#35-subsequent-measurement) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:c0bf02335b8acbe9fe21f16ad20591a9aef558cf797553bd12887fc4971ded15 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-20-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/842/20/#35-subsequent-measurement) SEC content: no ##### [842-20-35-1](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:75859c2e81feb2c420183192de3a0be9a839c1947c8ac7f0f54e16ad16acb14f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. After 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."), for a [finance lease](https://asc.understandingaccounting.org/glossary/f/#finance-lease "From the perspective of a lessee, a lease that meets one or more of the criteria in paragraph 842-10-25-2."), a [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.") shall measure both of the following: 1. a The [lease liability](https://asc.understandingaccounting.org/glossary/l/#lease-liability "A lessee's obligation to make the lease payments arising from a lease, measured on a discounted basis.") by increasing the carrying amount to reflect interest on the lease liability and reducing the carrying amount to reflect the [lease payments](https://asc.understandingaccounting.org/glossary/l/#lease-payments "See paragraph 842-10-30-5 for what constitutes lease payments from the perspective of a lessee and a lessor.") made during the period. The lessee shall determine the interest on the lease liability in each period 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.") as the amount that produces a constant periodic discount rate on the remaining balance of the liability, taking into consideration the reassessment requirements in paragraphs [842-10-35-1 through 35-5](https://asc.understandingaccounting.org/asc/842/10/#842-10-35-1) . 2. b The [right-of-use asset](https://asc.understandingaccounting.org/glossary/r/#right-of-use-asset "An asset that represents a lessee's right to use an underlying asset for the lease term.") at cost less any accumulated amortization and any accumulated impairment losses, taking into consideration the reassessment requirements in paragraphs [842-10-35-1 through 35-5](https://asc.understandingaccounting.org/asc/842/10/#842-10-35-1) . ##### [842-20-35-2](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:c234f10a718928ab0cce6783f54abecd5ac4468d4d0955caaaaffa44a329d67f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A lessee shall recognize amortization of the right-of-use asset and interest on the lease liability for a finance lease in accordance with paragraph [842-20-25-5](https://asc.understandingaccounting.org/asc/842/20/#842-20-25-5). ##### [842-20-35-3](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:e40375fc1e302ec16b435d6b07bb6657d0bd78d49e798fb12c7f416dcb538425 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. After the commencement date, for an [operating lease](https://asc.understandingaccounting.org/glossary/o/#operating-lease "From the perspective of a lessee, any lease other than a finance lease. From the perspective of a lessor, any lease other than a sales-type lease or a direct financing lease."), a lessee shall measure both of the following: 1. a The lease liability at the present value of the lease payments not yet paid discounted using the [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.") established at the commencement date (unless the rate has been updated after the commencement date in accordance with paragraph [842-20-35-5](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-5), in which case that updated rate shall be used) 2. b The right-of-use asset at the amount of the lease liability, adjusted for the following, unless the right-of-use asset has been previously impaired, in which case the right-of-use asset is measured in accordance with paragraph [842-20-35-10](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-10) after the impairment: 1. 1 Prepaid or accrued lease payments 2. 2 The remaining balance of any lease incentives received, which is the amount of the gross lease incentives received net of amounts recognized previously as part of the single lease cost described in paragraph [842-20-25-6(a)](https://asc.understandingaccounting.org/asc/842/20/#842-20-25-6) 3. 3 Unamortized [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.") 4. 4 Impairment of the right-of-use asset. #### Remeasurement of the Lease Liability ##### [842-20-35-4](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:6e2e9c0f483ca86c4ce6739c30a580d4c01be15546e4f7822dbe7b7ac2d94752 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. After 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."), a [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.") shall remeasure the [lease liability](https://asc.understandingaccounting.org/glossary/l/#lease-liability "A lessee's obligation to make the lease payments arising from a lease, measured on a discounted basis.") to reflect changes to the [lease payments](https://asc.understandingaccounting.org/glossary/l/#lease-payments "See paragraph 842-10-30-5 for what constitutes lease payments from the perspective of a lessee and a lessor.") as described in paragraphs [842-10-35-4 through 35-5](https://asc.understandingaccounting.org/asc/842/10/#842-10-35-4) . A lessee shall recognize the amount of the remeasurement of the lease liability as an adjustment to the [right-of-use asset](https://asc.understandingaccounting.org/glossary/r/#right-of-use-asset "An asset that represents a lessee's right to use an underlying asset for the lease term."). However, if the carrying amount of the right-of-use asset is reduced to zero, a lessee shall recognize any remaining amount of the remeasurement in profit or loss. ##### [842-20-35-5](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:54f089a91d7144a5f3011f8af65e896329db8d8ef41c61c52923f090e9e25da0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If there is a remeasurement of 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 update the [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.") at the date of remeasurement on the basis of the remaining [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.") and the remaining lease payments unless the remeasurement of the lease liability is the result of one of the following: 1. a A change in the lease term or the assessment of whether the lessee will exercise an option to purchase the [underlying asset](https://asc.understandingaccounting.org/glossary/u/#underlying-asset "An asset that is the subject of a lease for which a right to use that asset has been conveyed to a lessee. The underlying asset could be a physically distinct portion of a single asset.") and the discount rate for the lease already reflects that the lessee has an 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. 2. b A change in 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.") (see paragraph [842-10-35-4(c)(3)](https://asc.understandingaccounting.org/asc/842/10/#842-10-35-4)). 3. c A change in the lease payments resulting from the resolution of a contingency upon which some or all of the [variable lease payments](https://asc.understandingaccounting.org/glossary/v/#variable-lease-payments "Payments made by a lessee to a lessor for the right to use an underlying asset that vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time.") that will be paid over the remainder of the lease term are based (see paragraph [842-10-35-4(b)](https://asc.understandingaccounting.org/asc/842/10/#842-10-35-4)). ##### [842-20-35-6](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:7ffd25aadebb3aacbfeecf5c02a97301e29b429347bf77fd78f30480c4153e82 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Examples 3 and 4 (paragraphs [842-20-55-21 through 55-46](https://asc.understandingaccounting.org/asc/842/20/#842-20-55-21) ) for an illustration of the requirements on lessee subsequent measurement. #### Amortization of the Right-of-Use Asset for a Finance Lease ##### [842-20-35-7](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:eb2d6736645455d0081f50e28fcf515d389ea1d9ed727adfd57c02e97d85054a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.") shall amortize the [right-of-use asset](https://asc.understandingaccounting.org/glossary/r/#right-of-use-asset "An asset that represents a lessee's right to use an underlying asset for the lease term.") on a straight-line basis, unless another systematic basis is more representative of the pattern in which the lessee expects to consume the right-of-use asset's future economic benefits. When the [lease liability](https://asc.understandingaccounting.org/glossary/l/#lease-liability "A lessee's obligation to make the lease payments arising from a lease, measured on a discounted basis.") is remeasured and the right-of-use asset is adjusted in accordance with paragraph [842-20-35-4](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-4), amortization of the right-of-use asset shall be adjusted prospectively from the date of remeasurement. ##### [842-20-35-8](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:3ca476b13bb967849da78774288a14b1cd22e8e8fb06838701dc3f7023298a72 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A lessee shall amortize the right-of-use asset from 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.") to the earlier of the end of the [useful life](https://asc.understandingaccounting.org/glossary/u/#useful-life "The period over which an asset is expected to contribute directly or indirectly to future cash flows.") of the right-of-use asset or 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."). However, if 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.") transfers ownership 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.") to the lessee or the lessee is reasonably certain to exercise an option to purchase the underlying asset, the lessee shall amortize the right-of-use asset to the end of the useful life of the underlying asset. #### Impairment of a Right-of-Use Asset ##### [842-20-35-9](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:f3466c2bc4079589dda75c5a5f014339ce1b65bc8e18d292ed908af371820bc2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.") shall determine whether a [right-of-use asset](https://asc.understandingaccounting.org/glossary/r/#right-of-use-asset "An asset that represents a lessee's right to use an underlying asset for the lease term.") is impaired and shall recognize any impairment loss in accordance with Section 360-10-35 on impairment or disposal of long-lived assets. ##### [842-20-35-10](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:e50ef8be429a70f5fd8c04b2be0c65da8103394a57df4151656979e4e6af9280 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a right-of-use asset is impaired in accordance with paragraph [842-20-35-9](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-9), after the impairment, it shall be measured at its carrying amount immediately after the impairment less any accumulated amortization. A lessee shall amortize, in accordance with paragraph [842-20-25-7](https://asc.understandingaccounting.org/asc/842/20/#842-20-25-7) (for an [operating lease](https://asc.understandingaccounting.org/glossary/o/#operating-lease "From the perspective of a lessee, any lease other than a finance lease. From the perspective of a lessor, any lease other than a sales-type lease or a direct financing lease.")) or paragraph [842-20-35-7](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-7) (for a [finance lease](https://asc.understandingaccounting.org/glossary/f/#finance-lease "From the perspective of a lessee, a lease that meets one or more of the criteria in paragraph 842-10-25-2.")), the right-of-use asset from the date of the impairment to the earlier of the end of the [useful life](https://asc.understandingaccounting.org/glossary/u/#useful-life "The period over which an asset is expected to contribute directly or indirectly to future cash flows.") of the right-of-use asset or 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."). ##### [842-20-35-11](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:25877315e57a26464cb16df162b9bb5ef126fa120624a5e3236eeacadbe59ea2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Example 5 (paragraphs [842-20-55-47 through 55-51](https://asc.understandingaccounting.org/asc/842/20/#842-20-55-47) ) for an illustration of the requirements for impairment of a right-of-use asset. #### Amortization of Leasehold Improvements ##### [842-20-35-12](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:cc8e7089deec1a233f3313bb846205b6fa9cc404ee2d844a59c2487b7ce230c0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Leasehold improvements, other than those accounted for in accordance with paragraph [842-20-35-12A](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-12A), shall be amortized over the shorter of the [useful life](https://asc.understandingaccounting.org/glossary/u/#useful-life "The period over which an asset is expected to contribute directly or indirectly to future cash flows.") of those leasehold improvements and the remaining [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."), unless 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.") transfers ownership 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.") 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.") or the lessee is reasonably certain to exercise an option to purchase the underlying asset, in which case the lessee shall amortize the leasehold improvements to the end of their useful life. ##### [842-20-35-12A](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-12A) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:fcf9b1b65723870d3229cdd3a464d1e7b26b5df71791c719dac6bf80f2653057 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Leasehold improvements associated with a lease between entities under common control shall be: 1. a Amortized over the useful life of those improvements to the common control group as long as the lessee controls the use of the underlying asset through a lease. If 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.") obtained the right to control the use of the underlying asset through a lease with another entity not within the same common control group, the amortization period shall not exceed the amortization period of the common control group determined in accordance with paragraph [842-20-35-12](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-12). 2. b Accounted for as a transfer between entities under common control through an adjustment to equity (net assets for 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.")) when the lessee no longer controls the use of the underlying asset. ##### [842-20-35-12B](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-12B) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:2b417eec9095ec4d61e09a5281cbfb08edb6dab713caab3fe6cd0924dc62df05 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity with leasehold improvements accounted for in accordance with paragraph [842-20-35-12A](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-12A) shall apply the impairment requirements in paragraph [360-10-40-4](https://asc.understandingaccounting.org/asc/360/10/#360-10-40-4), considering the useful life to the common control group. ##### [842-20-35-12C](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-12C) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:e4f321533d98d04f5b79859d95b13d3548889a2136118b5dbcef8b56925972f7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If after the [commencement date](https://asc.understandingaccounting.org/glossary/c/#commencement-date-of-the-lease-commencement-date "The date on which a lessor makes an underlying asset available for use by a lessee. See paragraphs 842-10-55-19842-10-55-20842-10-55-21 for implementation guidance on the commencement date.") the lessee and lessor become within the same common control group or are no longer within the same common control group, any change in the required amortization period for leasehold improvements shall be accounted for prospectively as a [change in accounting estimate](https://asc.understandingaccounting.org/glossary/c/#change-in-accounting-estimate "A change that has the effect of adjusting the carrying amount of an existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities. A change in accounting estimate is a necessary consequence of the assessment, in conjunction with the periodic presentation of financial statements, of the present status and expected future benefits and obligations associated with assets and liabilities. Changes in accounting estimates result from new information. Examples of items for which estimates are necessary are uncollectible receivables, inventory obsolescence, service lives and salvage values of depreciable assets, and warranty obligations.") in accordance with paragraph [250-10-45-17](https://asc.understandingaccounting.org/asc/250/10/#250-10-45-17). ##### [842-20-35-13](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:56f004212a5d0a6f840c242850a18ec16a2b9c6f91c6d4e95501cc435554b33d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Leasehold improvements acquired 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."), acquired in 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."), or recognized by 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.") upon formation shall be amortized over the shorter of the useful life of the assets and the remaining lease term at the date of acquisition. #### Subleases ##### [842-20-35-14](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:2885ea238c55246f9e57e875694a6dc0a9d811e2b92f575eb9b68d0c0c4bc149 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the nature of a [sublease](https://asc.understandingaccounting.org/glossary/s/#sublease "A transaction in which an underlying asset is re-leased by the lessee (or intermediate lessor) to a third party (the sublessee) and the original (or head) lease between the lessor and the lessee remains in effect.") is such that the original [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 not relieved of the primary obligation under the original [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration."), the original lessee (as sublessor) shall continue to account for the original lease in one of the following ways: 1. a If the sublease is classified as an [operating lease](https://asc.understandingaccounting.org/glossary/o/#operating-lease "From the perspective of a lessee, any lease other than a finance lease. From the perspective of a lessor, any lease other than a sales-type lease or a direct financing lease."), the original lessee shall continue to account for the original lease as it did before commencement of the sublease. If the lease cost for the term of the sublease exceeds the anticipated sublease income for that same period, the original lessee shall treat that circumstance as an indicator that the carrying amount of the [right-of-use asset](https://asc.understandingaccounting.org/glossary/r/#right-of-use-asset "An asset that represents a lessee's right to use an underlying asset for the lease term.") associated with the original lease may not be recoverable in accordance with paragraph [360-10-35-21](https://asc.understandingaccounting.org/asc/360/10/#360-10-35-21). 2. b If the original lease is classified as a [finance lease](https://asc.understandingaccounting.org/glossary/f/#finance-lease "From the perspective of a lessee, a lease that meets one or more of the criteria in paragraph 842-10-25-2.") and the sublease is classified as a [sales-type lease](https://asc.understandingaccounting.org/glossary/s/#sales-type-lease "From the perspective of a lessor, a lease that meets one or more of the criteria in paragraph 842-10-25-2 and is not an operating lease in accordance with paragraph 842-10-25-3A.") or a [direct financing lease](https://asc.understandingaccounting.org/glossary/d/#direct-financing-leases "Glossary term superseded by Accounting Standards Update No. 2016-02."), the original lessee shall derecognize the original right-of-use asset in accordance with paragraph [842-30-40-1](https://asc.understandingaccounting.org/asc/842/30/#842-30-40-1) and continue to account for the original [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.") as it did before commencement of the sublease. The original lessee shall evaluate its investment in the sublease for impairment in accordance with paragraph [842-30-35-3](https://asc.understandingaccounting.org/asc/842/30/#842-30-35-3). 3. c If the original lease is classified as an operating lease and the sublease is classified as a sales-type lease or a direct financing lease, the original lessee shall derecognize the original right-of-use asset in accordance with paragraph [842-30-40-1](https://asc.understandingaccounting.org/asc/842/30/#842-30-40-1) and, from the sublease [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."), account for the original lease liability in accordance with paragraphs [842-20-35-1 through 35-2](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-1) . The original lessee shall evaluate its investment in the sublease for impairment in accordance with paragraph [842-30-35-3](https://asc.understandingaccounting.org/asc/842/30/#842-30-35-3). ##### [842-20-35-15](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:44.820Z to 2026-09-10T01:56:44.820Z Record version: sha256:f2140fc8f56e7a4deaf47c28e22056804a568aadb11197ee69ca2735ceae3140 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The original lessee (as sublessor) in a sublease shall use the [rate implicit in the lease](https://asc.understandingaccounting.org/glossary/r/#rate-implicit-in-the-lease "The rate of interest that, at a given date, causes the aggregate present value of (a) the lease paymentsand (b) the amount that a lessor expects to derive from the underlying asset following the end of the lease termto equal the sum of (1) the fair value of the underlying asset minus any related investment tax credit retained and expected to be realized by the lessor and (2) any deferred initial direct costs of the lessor. However, if the rate determined in accordance with the preceding sentence is less than zero, a rate implicit in the lease of zero shall be used.") to determine the classification of the sublease and to measure the net investment in the sublease if the sublease is classified as a sales-type or a direct financing lease unless that rate cannot be readily determined. If the rate implicit in the lease cannot be readily determined, the original lessee may use the [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.") established for the original (or head) lease.