# ASC 842-20-40: Leases — Lessee — 40 Derecognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/842/20/#40-derecognition) 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): 2026-09-10T01:56:47.806Z to 2026-09-10T01:56:47.806Z Record version: sha256:309b912d5a73ef73687811a49e0a8f461bb86ae12989b4d0f25bf542fc714706 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-20-40: 40 Derecognition [Read section](https://asc.understandingaccounting.org/asc/842/20/#40-derecognition) SEC content: no #### Lease Termination ##### [842-20-40-1](https://asc.understandingaccounting.org/asc/842/20/#842-20-40-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:47.806Z to 2026-09-10T01:56:47.806Z Record version: sha256:024d22b87882fe90f83ef320d38b4a1594ef4e8654cc649dcd9523bcafd6c4aa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A termination of a [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") before the expiration 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.") shall be accounted for by the [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.") by removing 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.") and 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."), with profit or loss recognized for the difference. ##### [842-20-40-2](https://asc.understandingaccounting.org/asc/842/20/#842-20-40-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:47.806Z to 2026-09-10T01:56:47.806Z Record version: sha256:4605da6f3227a942c5bf3f2fa433c548ef1f9c284d946a9c9af12d3d02b54f81 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The termination of a [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") that results from the purchase of an [underlying asset](https://asc.understandingaccounting.org/glossary/u/#underlying-asset "An asset that is the subject of a lease for which a right to use that asset has been conveyed to a lessee. The underlying asset could be a physically distinct portion of a single asset.") by the [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.") is not the type of termination of a lease contemplated by paragraph [842-20-40-1](https://asc.understandingaccounting.org/asc/842/20/#842-20-40-1) but, rather, is an integral part of the purchase of the underlying asset. If the lessee purchases the underlying asset, any difference between the purchase price and the carrying amount of the lease liability immediately before the purchase shall be recorded by the lessee as an adjustment of the carrying amount of the asset. However, this paragraph does not apply to underlying assets 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."), which are initially measured 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.") in accordance with paragraph [805-20-30-1](https://asc.understandingaccounting.org/asc/805/20/#805-20-30-1). #### Subleases ##### [842-20-40-3](https://asc.understandingaccounting.org/asc/842/20/#842-20-40-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:56:47.806Z to 2026-09-10T01:56:47.806Z Record version: sha256:7fcf2a08c4e18697b2d4c3ae2dd2939d3884f4631d33d74d4a4d45865db569e9 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 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 transaction shall be considered a termination of the original lease. Paragraph [842-20-35-14](https://asc.understandingaccounting.org/asc/842/20/#842-20-35-14) addresses subleases in which the original lessee is not relieved of the primary obligation under the original lease. Any consideration paid or received upon termination that was not already included in 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.") (for example, a termination payment that was not included in the lease payments based on 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.")) shall be included in the determination of profit or loss to be recognized in accordance with paragraph [842-20-40-1](https://asc.understandingaccounting.org/asc/842/20/#842-20-40-1). If a sublease is a termination of the original lease and the original lessee is secondarily liable, the guarantee obligation shall be recognized by the lessee in accordance with paragraph [405-20-40-2](https://asc.understandingaccounting.org/asc/405/20/#405-20-40-2).