{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/842/20/#55-implementation-guidance-and-illustrations","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":"55","label":"55 Implementation Guidance and Illustrations","anchor":"55-implementation-guidance-and-illustrations","is_sec":false,"groups":[{"block":null,"heading":"Implementation Guidance","paragraphs":[{"citation":"842-20-55-1","para":"55-1","html":"
A lessee should recognize costs from variable lease payments (in annual periods as well as in interim periods) before the achievement of the specified target that triggers the variable lease payments, provided the achievement of that target is considered probable.
","snippet":"A lessee should recognize costs from variable lease payments (in annual periods as well as in interim periods) before the achievement of the specified target that triggers the variable lease payments, provided the achiev…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:78c6e31c9a6f34586f66c0c7225c794eadaf10d272f1f94f3e9e6843dd9f2051","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-2","para":"55-2","html":"
Variable lease costs recognized in accordance with paragraph 842-20-55-1 should be reversed at such time that it is probable that the specified target will not be met.
","snippet":"Variable lease costs recognized in accordance with paragraph 842-20-55-1 should be reversed at such time that it is probable that the specified target will not be met.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:58563d988ba97456c3be69dc729b868700188a28b784e056e001ba8ea41f5de2","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-3","para":"55-3","html":"
This Subtopic considers the right to control the use of the underlying asset as the equivalent of physical use. If the lessee controls the use of the underlying asset, recognition of lease cost in accordance with paragraph 842-20-25-6(a) or amortization of the right-of-use asset in accordance with paragraph 842-20-35-7 should not be affected by the extent to which the lessee uses the underlying asset.
","snippet":"This Subtopic considers the right to control the use of the underlying asset as the equivalent of physical use. If the lessee controls the use of the underlying asset, recognition of lease cost in accordance with paragra…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0413995d13e69f2b40540d385398b88f67f0be047e4b55082532098db2ffe62e","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-4","para":"55-4","html":"
Under certain leases (for example, certain equipment leases), a lessee is legally or contractually responsible for repair and maintenance of the underlying asset throughout the lease term. Additionally, certain lease agreements include provisions requiring the lessee to make deposits to the lessor to financially protect the lessor in the event the lessee does not properly maintain the underlying asset. Lease agreements often refer to these deposits as maintenance reserves or supplemental rent. However, the lessor is required to reimburse the deposits to the lessee on the completion of maintenance activities that the lessee is contractually required to perform under the lease agreement.
","snippet":"Under certain leases (for example, certain equipment leases), a lessee is legally or contractually responsible for repair and maintenance of the underlying asset throughout the lease term. Additionally, certain lease agr…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b6b54eaf923d30b59017b65e5167fa5435a485e596a1aaad2675744704b7baa0","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-5","para":"55-5","html":"
Under a typical arrangement, maintenance deposits are calculated on the basis of a performance measure, such as hours of use of the underlying asset, and are contractually required under the terms of the lease agreement to be used to reimburse the lessee for required maintenance of the underlying asset on the completion of that maintenance. The lessor is contractually required to reimburse the lessee for the maintenance costs paid by the lessee, to the extent of the amounts on deposit.
","snippet":"Under a typical arrangement, maintenance deposits are calculated on the basis of a performance measure, such as hours of use of the underlying asset, and are contractually required under the terms of the lease agreement …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1fcde55f6be21e824428fc444c0c7ea54af622fbd2987edac10786da898a1a92","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-6","para":"55-6","html":"
In some cases, the total cost of cumulative maintenance events over the term of the lease is less than the cumulative deposits, which results in excess amounts on deposit at the expiration of the lease. In those cases, some lease agreements provide that the lessor is entitled to retain such excess amounts, whereas other agreements specifically provide that, at the expiration of the lease agreement, such excess amounts are returned to the lessee (refundable maintenance deposit).
","snippet":"In some cases, the total cost of cumulative maintenance events over the term of the lease is less than the cumulative deposits, which results in excess amounts on deposit at the expiration of the lease. In those cases, s…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b362ddc8026253e1daf409c9ea38c0449ae5c5e5ccfa84f5d6d0bb9912fc698a","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-7","para":"55-7","html":"
The guidance in paragraphs
842-20-55-8 through 55-9
does not apply to payments to a lessor that are not substantively and contractually related to maintenance of the leased asset. If at the commencement date a lessee determines that it is less than probable that the total amount of payments will be returned to the lessee as a reimbursement for maintenance activities, the lessee should consider that when determining the portion of each payment that is not addressed by the guidance in paragraphs
842-20-55-8 through 55-9
.
","snippet":"The guidance in paragraphs 842-20-55-8 through 55-9 does not apply to payments to a lessor that are not substantively and contractually related to maintenance of the leased asset. If at the commencement date a lessee det…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3f8c301c6c56582acff04772ba78758e93a86e43453facdaebbfa69b798bf84e","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-8","para":"55-8","html":"
Maintenance deposits paid by a lessee under an arrangement accounted for as a lease that are refunded only if the lessee performs specified maintenance activities should be accounted for as a deposit asset.
","snippet":"Maintenance deposits paid by a lessee under an arrangement accounted for as a lease that are refunded only if the lessee performs specified maintenance activities should be accounted for as a deposit asset.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9d4d6c9659b43886f39b9f37dd06e9261c5a63ab23a0f7644701f023933012c6","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-9","para":"55-9","html":"
A lessee should evaluate whether it is probable that an amount on deposit recognized under paragraph 842-20-55-8 will be returned to reimburse the costs of the maintenance activities incurred by the lessee. When an amount on deposit is less than probable of being returned, it should be recognized in the same manner as variable lease expense. When the underlying maintenance is performed, the maintenance costs should be expensed or capitalized in accordance with the lessee's maintenance accounting policy.
","snippet":"A lessee should evaluate whether it is probable that an amount on deposit recognized under paragraph 842-20-55-8 will be returned to reimburse the costs of the maintenance activities incurred by the lessee. When an amoun…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:78dbe2b5ae8c456275ba351c5274e7ef01bf6f3398d37d03b29eba7d0f95d941","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-10","para":"55-10","html":"
The right-of-use asset is a nonmonetary asset while the lease liability is a monetary liability. Therefore, in accordance with Subtopic 830-10 on foreign currency matters, when accounting for a lease that is denominated in a foreign currency, if remeasurement into the lessee's functional currency is required, the lease liability is remeasured using the current exchange rate, while the right-of-use asset is remeasured using the exchange rate as of the commencement date.
","snippet":"The right-of-use asset is a nonmonetary asset while the lease liability is a monetary liability. Therefore, in accordance with Subtopic 830-10 on foreign currency matters, when accounting for a lease that is denominated …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3a82395f12b2c28d52d2774f8238ab92f935be566875b1da1138e009d31aac2d","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-11","para":"55-11","html":"
The lessee should calculate the weighted-average remaining lease term on the basis of the remaining lease term and the lease liability balance for each lease as of the reporting date.
","snippet":"The lessee should calculate the weighted-average remaining lease term on the basis of the remaining lease term and the lease liability balance for each lease as of the reporting date.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:98361196994c1962ec2ed1f57a1ba3f93a5209a2e15267e1f7393a3d879198d1","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-12","para":"55-12","html":"
The lessee should calculate the weighted-average discount rate on the basis of both of the following:
  1. a
    The discount rate for the lease that was used to calculate the lease liability balance for each lease as of the reporting date
  2. b
    The remaining balance of the lease payments for each lease as of the reporting date.
","snippet":"The lessee should calculate the weighted-average discount rate on the basis of both of the following:\n(a) The discount rate for the lease that was used to calculate the lease liability balance for each lease as of the re…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4fd72513a02e29bcbd48f24844a9e0baab7ef90acad639fd4de1f46d8fb0dcf5","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d8e8cd0ea226416854b67970c5109f7e1723e5b276001a730665621a79d60711","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"block":null,"heading":"Illustrations","paragraphs":[{"citation":"842-20-55-13","para":"55-13","html":"
Example 1 illustrates the assessment of whether a lease is a short-term lease.
","snippet":"Example 1 illustrates the assessment of whether a lease is a short-term lease.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:db697b221a8d2f29264a3ef8f86e93b248e25df8f79987e7f33bcf49ec4b4a52","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-14","para":"55-14","html":"
Lessee has made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise from short-term leases for any class of underlying asset.
","snippet":"Lessee has made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise from short-term leases for any class of underlying asset.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:245b9cc29cb2208f2410bf7080f37ed32abb6ad2192fea2822b37357a0f766d8","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-15","para":"55-15","html":"
Lessee enters into a 12-month lease of a vehicle, with an option to extend for another 12 months. Lessee has considered all relevant factors and determined that it is not reasonably certain to exercise the option to extend. Because at lease commencement Lessee is not reasonably certain to exercise the option to extend, the lease term is 12 months.
","snippet":"Lessee enters into a 12-month lease of a vehicle, with an option to extend for another 12 months. Lessee has considered all relevant factors and determined that it is not reasonably certain to exercise the option to exte…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5ebd5261e9607d86251982dda512ceb8498870c2b0c32c39d88798d5b145facc","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-16","para":"55-16","html":"
The lease meets the definition of a short-term lease because the lease term is 12 months or less. Consequently, consistent with Lessee's accounting policy election, Lessee does not recognize the right-of-use asset and the lease liability arising from this lease.
","snippet":"The lease meets the definition of a short-term lease because the lease term is 12 months or less. Consequently, consistent with Lessee's accounting policy election, Lessee does not recognize the right-of-use asset and th…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7010dbf0cb269825901de0401b4f166baf1dc40c7269bb4d58e7fb320ef3831b","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-17","para":"55-17","html":"
Example 2 illustrates the determination of the discount rate for the lease.
","snippet":"Example 2 illustrates the determination of the discount rate for the lease.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:64f4bec4be9c51363acfbfed90ce421038611f8103627d4b829b8d8b2d1dc34c","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-18","para":"55-18","html":"
Lessee, a public entity, is the parent of several consolidated subsidiaries. During the current period, 2 subsidiaries entered into a total of 400 individual leases of large computer servers, each with terms ranging between 4 and 5 years and annual payments ranging between $60,000 and $100,000, depending on the hardware capacity of the servers. In aggregate, total lease payments for these leases amount to $30 million.
","snippet":"Lessee, a public entity, is the parent of several consolidated subsidiaries. During the current period, 2 subsidiaries entered into a total of 400 individual leases of large computer servers, each with terms ranging betw…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b5b7b4bcb4fa195aaef55bfa5aeb9f1acbe47c4a6eb2adb8798afde31b5ed588","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-19","para":"55-19","html":"
The individual lease contracts do not provide information about the rate implicit in the lease. Lessee is BBB credit rated and actively raises debt in the corporate bond market. Both subsidiaries are unrated and do not actively engage in treasury operations in their respective markets. On the basis of its credit rating and the collateral represented by the leased servers, Lessee's incremental borrowing rate on $60,000 through $100,000 (the range of lease payments on each of the 400 leases) would be approximately 4 percent. Lessee notes that 5-year zero-coupon U.S. Treasury instruments are currently yielding 1.7 percent (a risk-free rate). Because Lessee conducts its treasury operations centrally (that is, at the consolidated group level), it is reasonably assumed that consideration of the group credit standing factored into how each lease was priced.
","snippet":"The individual lease contracts do not provide information about the rate implicit in the lease. Lessee is BBB credit rated and actively raises debt in the corporate bond market. Both subsidiaries are unrated and do not a…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b0de1f497dcc054eba2e98fc343499a9d4e7609aa6dd60fda1c6f67e4749a63a","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-20","para":"55-20","html":"
Lessee may determine the discount rate for the lease for the 400 individual leases entered into on different dates throughout the current period by using a portfolio approach. That is, Lessee can apply a single discount rate to the portfolio of new leases. This is because during the period, the new leases are all of similar terms (four to five years), and Lessee's credit rating and the interest rate environment are stable. Because the pricing of the lease is influenced by the credit standing and profile of Lessee rather than the subsidiaries (that is, because Lessee conducts treasury operations for the consolidated group), Lessee concludes that its incremental borrowing rate of 4 percent is an appropriate discount rate for each of the 400 leases entered into by Lessee's 2 subsidiaries during the period. Because Lessee is a public entity, it is not permitted to use a risk-free discount rate.
","snippet":"Lessee may determine the discount rate for the lease for the 400 individual leases entered into on different dates throughout the current period by using a portfolio approach. That is, Lessee can apply a single discount …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:9a0f192e30857e0c42d72449d69cff1da86950024b1d7d8b0c031aa840eaef5d","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-21","para":"55-21","html":"
Example 3 illustrates how a lessee would initially and subsequently measure right-of-use assets and lease liabilities and how a lessee would account for a change in the lease term.
","snippet":"Example 3 illustrates how a lessee would initially and subsequently measure right-of-use assets and lease liabilities and how a lessee would account for a change in the lease term.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f01b004da29ae7dcdad1df6673483f453f5e46a5a50bf79411db1a5335b9e912","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-22","para":"55-22","html":"
Lessee enters into a 10-year lease of an asset, with an option to extend for an additional 5 years. Lease payments are $50,000 per year during the initial term and $55,000 per year during the optional period, all payable at the beginning of each year. Lessee incurs initial direct costs of $15,000.
","snippet":"Lessee enters into a 10-year lease of an asset, with an option to extend for an additional 5 years. Lease payments are $50,000 per year during the initial term and $55,000 per year during the optional period, all payable…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8ef158d135ec0eb9fa632e463eaf34656e4727bbcae3092f68c66aea304ad36e","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-23","para":"55-23","html":"
At the commencement date, Lessee concludes that it is not reasonably certain to exercise the option to extend the lease and, therefore, determines the lease term to be 10 years.
","snippet":"At the commencement date, Lessee concludes that it is not reasonably certain to exercise the option to extend the lease and, therefore, determines the lease term to be 10 years.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:baddf7536cbfd8828298e57eac19dd5ae04e0a4fe64876e9006dddb59c1dc3eb","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-24","para":"55-24","html":"
The rate implicit in the lease is not readily determinable. Lessee's incremental borrowing rate is 5.87 percent, which reflects the fixed rate at which Lessee could borrow a similar amount in the same currency, for the same term, and with similar collateral as in the lease at the commencement date.
","snippet":"The rate implicit in the lease is not readily determinable. Lessee's incremental borrowing rate is 5.87 percent, which reflects the fixed rate at which Lessee could borrow a similar amount in the same currency, for the s…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:1c91afc31a6a55a850e25507ecd20a43d8aa121ae36252e07e702986b69e89ec","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-25","para":"55-25","html":"
At the commencement date, Lessee makes the lease payment for the first year, incurs initial direct costs, and measures the lease liability at the present value of the remaining 9 payments of $50,000, discounted at the rate of 5.87 percent, which is $342,017. Lessee also measures a right-of-use asset of $407,017 (the initial measurement of the lease liability plus the initial direct costs and the lease payment for the first year).
","snippet":"At the commencement date, Lessee makes the lease payment for the first year, incurs initial direct costs, and measures the lease liability at the present value of the remaining 9 payments of $50,000, discounted at the ra…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a37c180c660d059fd83f1119498e1d53201e868303c6744f4e5b56c112563bab","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-26","para":"55-26","html":"
During the first year of the lease, Lessee recognizes lease expense depending on how the lease is classified. Paragraphs
842-20-55-27 through 55-30
illustrate the lease expense depending on whether the lease is classified as a finance lease or as an operating lease.
","snippet":"During the first year of the lease, Lessee recognizes lease expense depending on how the lease is classified. Paragraphs 842-20-55-27 through 55-30 illustrate the lease expense depending on whether the lease is classifie…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:a62515f86b0b688290717e771e4859a830ccbd73f643fd170cea54ff4e02fdc2","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-27","para":"55-27","html":"
Lessee depreciates its owned assets on a straight-line basis. Therefore, the right-of-use asset would be amortized on a straight-line basis over the 10-year lease term. The lease liability is increased to reflect the Year 1 interest on the lease liability in accordance with the interest method. As such, in Year 1 of the lease, Lessee recognizes the amortization expense of $40,702 ($407,017 ÷ 10) and the interest expense of $20,076 (5.87% × $342,017).
","snippet":"Lessee depreciates its owned assets on a straight-line basis. Therefore, the right-of-use asset would be amortized on a straight-line basis over the 10-year lease term. The lease liability is increased to reflect the Yea…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:754569f99083f255197fb75c637c2835322388281965b351d574a9dca3079d74","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-28","para":"55-28","html":"
At the end of the first year of the lease, the carrying amount of Lessee's lease liability is $362,093 ($342,017 + $20,076), and the carrying amount of the right-of-use asset is $366,315 ($407,017 - $40,702).
","snippet":"At the end of the first year of the lease, the carrying amount of Lessee's lease liability is $362,093 ($342,017 + $20,076), and the carrying amount of the right-of-use asset is $366,315 ($407,017 - $40,702).","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:151b4b5ac1a4561118fa73349449b547ba05d3c1b36fa6572c75d14e95f6d35c","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-29","para":"55-29","html":"
Lessee determines the cost of the lease to be $515,000 (sum of the lease payments for the lease term and initial direct costs incurred by Lessee). The annual lease expense to be recognized is therefore $51,500 ($515,000 ÷ 10 years).
","snippet":"Lessee determines the cost of the lease to be $515,000 (sum of the lease payments for the lease term and initial direct costs incurred by Lessee). The annual lease expense to be recognized is therefore $51,500 ($515,000 …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f99497a5044a984d388278602df3bc1b4ec64b1a2e84529f8f25dd113fb3938f","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-30","para":"55-30","html":"
At the end of the first year of the lease, the carrying amount of Lessee's lease liability is $362,093 ($342,017 + $20,076), and the carrying amount of the right-of-use asset is $375,593 (the carrying amount of the lease liability plus the remaining initial direct costs, which equal $13,500).
","snippet":"At the end of the first year of the lease, the carrying amount of Lessee's lease liability is $362,093 ($342,017 + $20,076), and the carrying amount of the right-of-use asset is $375,593 (the carrying amount of the lease…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:824138889924a8748c53fa5f97f68a3d9e8d18af82f53ce482ba22f4da65aebf","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-31","para":"55-31","html":"
At the end of Year 6 of the lease, Lessee makes significant leasehold improvements. Those improvements are expected to have significant economic value for Lessee at the end of the original lease term of 10 years. The improvements result in the underlying asset having greater utility to Lessee than alternative assets that could be leased for a similar amount and that are expected to have significant economic life beyond the original lease term. Consequently, construction of the leasehold improvements is deemed a significant event or significant change in circumstances that directly affects whether Lessee is reasonably certain to exercise the option to extend the lease and triggers a reassessment of the lease term. Upon reassessing the lease term, at the end of Year 6, Lessee concludes that it is reasonably certain to exercise the option to extend the lease for five years. Taking into consideration the extended remaining lease term, Lessee's incremental borrowing rate at the end of Year 6 is 7.83 percent. As a result of Lessee's remeasuring the remaining lease term to nine years, Lessee also would remeasure any variable lease payments that depend on an index or a rate; however, in this Example, there are no variable lease payments that depend on an index or a rate. In accordance with paragraph 842-10-25-1, Lessee reassesses the lease classification as a result of the change in the lease term. Assume for purposes of this Example that the reassessment does not change the classification of the lease from that determined at the commencement date.
","snippet":"At the end of Year 6 of the lease, Lessee makes significant leasehold improvements. Those improvements are expected to have significant economic value for Lessee at the end of the original lease term of 10 years. The imp…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0228ece517a36dd6321a10a04689dae9c8941da9e596142c82c71d48a575dcd8","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-32","para":"55-32","html":"
At the end of Year 6, before accounting for the change in the lease term, the lease liability is $183,973 (present value of 4 remaining payments of $50,000, discounted at the rate of 5.87 percent). Lessee's right-of-use asset is $162,807 if the lease is classified as a finance lease or $189,973 if the lease is classified as an operating lease (the balance of the remeasured lease liability at the end of Year 6 plus the remaining initial direct costs of $6,000).
","snippet":"At the end of Year 6, before accounting for the change in the lease term, the lease liability is $183,973 (present value of 4 remaining payments of $50,000, discounted at the rate of 5.87 percent). Lessee's right-of-use …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7d29bd6997a5c6d095baf1eb9e6bb8dcf0bead97ee06d0853ad72312584ae95e","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-33","para":"55-33","html":"
Lessee remeasures the lease liability, which is now equal to the present value of 4 payments of $50,000 followed by 5 payments of $55,000, all discounted at the rate of 7.83 percent, which is $355,189. Lessee increases the lease liability by $171,216, representing the difference between the remeasured liability and its current carrying amount ($355,189 - $183,973). The corresponding adjustment is made to the right-of-use asset to reflect the cost of the additional rights.
","snippet":"Lessee remeasures the lease liability, which is now equal to the present value of 4 payments of $50,000 followed by 5 payments of $55,000, all discounted at the rate of 7.83 percent, which is $355,189. Lessee increases t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:43c86eefaebd446b627f07b826455945da9d7ba524e432ce66f6fa9660b68d77","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-34","para":"55-34","html":"
Following the adjustment, the carrying amount of Lessee's right-of-use asset is $334,023 if the lease is a finance lease (that is, $162,807 + $171,216) or $361,189 if the lease is an operating lease (that is, $189,973 + $171,216).
","snippet":"Following the adjustment, the carrying amount of Lessee's right-of-use asset is $334,023 if the lease is a finance lease (that is, $162,807 + $171,216) or $361,189 if the lease is an operating lease (that is, $189,973 + …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2d139555f390db3a653999f7422018e3d93e62befa87a49f6fd2d8cff627adbd","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-35","para":"55-35","html":"
Lessee then makes the $50,000 lease payment for Year 7, reducing the lease liability to $305,189 ($355,189 - $50,000), regardless of how the lease is classified.
","snippet":"Lessee then makes the $50,000 lease payment for Year 7, reducing the lease liability to $305,189 ($355,189 - $50,000), regardless of how the lease is classified.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7c9cbd918f4ca5b8a94c01dd559f86dafd76287ec258058ae0778f20f5cc91aa","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-36","para":"55-36","html":"
Lessee recognizes lease expense in Year 7 as follows, depending on how the lease had been classified at the commencement date.
","snippet":"Lessee recognizes lease expense in Year 7 as follows, depending on how the lease had been classified at the commencement date.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:71d71b980ec4b4b8fa209aa00895e881f9d7e95097130ed924c5f94e8d38e552","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-37","para":"55-37","html":"
Lessee depreciates its owned assets on a straight-line basis. Therefore, the right-of-use asset will be amortized on a straight-line basis over the lease term. The lease liability will be reduced in accordance with the interest method. As such, in Year 7 (the first year following the remeasurement), Lessee recognizes amortization expense of $37,114 ($334,023 ÷ 9) and interest expense of $23,896 (7.83% × $305,189).
","snippet":"Lessee depreciates its owned assets on a straight-line basis. Therefore, the right-of-use asset will be amortized on a straight-line basis over the lease term. The lease liability will be reduced in accordance with the i…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7f7934449e8d5358d18c7249656237b0c0115a7be22f80dc139baae2daac0540","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-38","para":"55-38","html":"
Lessee determines the remaining cost of the lease as the sum of the following:
  1. a
    The total lease payments, as adjusted for the remeasurement, which is the sum of $500,000 (10 payments of $50,000 during the initial lease term) and $275,000 (5 payments of $55,000 during the term of the lease extension); plus
  2. b
    The total initial direct costs attributable to the lease of $15,000; minus
  3. c
    The periodic lease cost recognized in prior periods of $309,000.
","snippet":"Lessee determines the remaining cost of the lease as the sum of the following:\n(a) The total lease payments, as adjusted for the remeasurement, which is the sum of $500,000 (10 payments of $50,000 during the initial leas…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7929969aebff4b553b596f463c56e6158a2afbd10f76c58ef7ea4a330cead93a","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-39","para":"55-39","html":"
The amount of the remaining cost of the lease is therefore $481,000 ($775,000 + $15,000 - $309,000). Consequently, Lessee determines that the annual expense to be recognized throughout the remainder of the lease term is $53,444 ($481,000 ÷ the remaining lease term of 9 years).
","snippet":"The amount of the remaining cost of the lease is therefore $481,000 ($775,000 + $15,000 - $309,000). Consequently, Lessee determines that the annual expense to be recognized throughout the remainder of the lease term is …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7ed5c8d0c351a6bf16a6a9ed863dd904665ccd254949eb4e94a48661218bddc7","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-40","para":"55-40","html":"
Example 4 illustrates how a lessee would recognize lease cost in an operating lease and initially and subsequently measure right-of-use assets and lease liabilities for that lease.
","snippet":"Example 4 illustrates how a lessee would recognize lease cost in an operating lease and initially and subsequently measure right-of-use assets and lease liabilities for that lease.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:d627d9fda06c9ae7f7eea4578d799a1de720297152c048d5d40ab7be8ed9f9cb","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-41","para":"55-41","html":"
Lessee enters into a 10-year lease for 5,000 square feet of office space. The annual lease payment is $10,000, paid in arrears, and increases 5 percent each year during the lease term. Lessee's incremental borrowing rate at lease commencement is 6 percent. Lessee classifies the lease as an operating lease in accordance with paragraphs
842-10-25-2 through 25-3
. Lessee incurs initial direct costs of $5,000.
","snippet":"Lessee enters into a 10-year lease for 5,000 square feet of office space. The annual lease payment is $10,000, paid in arrears, and increases 5 percent each year during the lease term. Lessee's incremental borrowing rate…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7beffeda87b30a253e77fa9959416fbf993b0ef509115dbfa4942670ef215f67","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-42","para":"55-42","html":"
At the commencement date, Lessee receives a $10,000 cash payment from Lessor that Lessee accounts for as a lease incentive. Lessee measures the lease liability at the present value of the 10 remaining lease payments ($10,000 in Year 1, increasing by 5 percent each year thereafter), discounted at the rate of 6 percent, which is $90,434. Lessee also measures a right-of-use asset of $85,434 (the initial measurement of the lease liability + the initial direct costs of $5,000 - the lease incentive of $10,000).
","snippet":"At the commencement date, Lessee receives a $10,000 cash payment from Lessor that Lessee accounts for as a lease incentive. Lessee measures the lease liability at the present value of the 10 remaining lease payments ($10…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f556ae33c8570ca69eeb7624e3590902c5083f926d6ee721594c90521304901d","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-43","para":"55-43","html":"
During the first year of the lease, Lessee determines the remaining cost of the lease as the sum of the following:
  1. a
    The total lease payments of $115,779 (the sum of the 10 escalating payments to Lessor during the lease term of $125,779 − the lease incentive paid to Lessee at the commencement date of $10,000)
  2. b
    The total initial direct costs attributable to the lease of $5,000.
The amount of the remaining lease cost is therefore $120,779 ($115,779 + $5,000). Consequently, Lessee determines that the single lease cost to be recognized every year throughout the lease term is $12,078 ($120,779 ÷ 10 years). This assumes that there are no remeasurements of the lease liability or modifications to the lease throughout the lease term.
","snippet":"During the first year of the lease, Lessee determines the remaining cost of the lease as the sum of the following:\n(a) The total lease payments of $115,779 (the sum of the 10 escalating payments to Lessor during the leas…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:603d2927139958615a083b4d0c23f8c47d02a2e3ed9d3362d1fc525ab9e740a7","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-44","para":"55-44","html":"
At the end of Year 1, the carrying amount of the lease liability is $85,860 (9 remaining lease payments, discounted at the rate of 6 percent), and the carrying amount of the right-of-use asset is the amount of the liability, adjusted for the following:
  1. a
    Accrued lease payments of $2,578 (the amount of payments to Lessor to be recognized as part of the single lease cost each year during the lease of $12,578 [total payments to Lessor of $125,779 ÷ 10 years] − the first year's lease payment of $10,000)
  2. b
    Unamortized initial direct costs of $4,500 (gross initial direct costs of $5,000 - amounts recognized previously as part of the single lease cost of $500 [total initial direct costs of $5,000 ÷ 10 years])
  3. c
    The remaining balance of the lease incentive of $9,000 (gross lease incentive of $10,000 - amounts recognized previously as part of the single lease cost of $1,000 [total lease incentives of $10,000 ÷ 10 years]).
Therefore, at the end of Year 1, Lessee measures the right-of-use asset at the amount of $78,782 ($85,860 - $2,578 + $4,500 - $9,000).
","snippet":"At the end of Year 1, the carrying amount of the lease liability is $85,860 (9 remaining lease payments, discounted at the rate of 6 percent), and the carrying amount of the right-of-use asset is the amount of the liabil…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c69ad7ecde579a4c3e2651c685aac35ef1f5e28e8d63171b1c556561e1ee2d1a","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-45","para":"55-45","html":"
At the beginning of Year 2, Lessee determines the remaining cost of the lease to be $108,701 (the total lease payments of $115,779 + the total initial direct costs of $5,000 - the single lease cost recognized in Year 1 of $12,078). The single lease cost to be recognized in Year 2 is still $12,078 ($108,701 ÷ 9 years). For the purposes of the Example, only the first two years' determination of the single lease cost are shown. However, the single lease cost will be determined in the same way as in Years 1 and 2 for the remainder of the lease and, in this Example, will continue to equal $12,078 every period for the remainder of the lease term assuming that there are no remeasurements of the lease liability or modifications to the lease.
","snippet":"At the beginning of Year 2, Lessee determines the remaining cost of the lease to be $108,701 (the total lease payments of $115,779 + the total initial direct costs of $5,000 - the single lease cost recognized in Year 1 o…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:75f3bd7d6353ac1633245290821d010b0c20a38aa35045cec0678d772dd61557","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-46","para":"55-46","html":"
At the end of Year 2, the carrying amount of the lease liability is $80,511, and the carrying amount of the right-of-use asset is $71,855 (the carrying amount of the lease liability of $80,511 - the accrued lease payments of $4,656 + the unamortized initial direct costs of $4,000 - the remaining balance of the lease incentive received of $8,000). For the purposes of the Example, the subsequent measurement of the lease liability and the subsequent measurement of the right-of-use asset are shown only for the first two years. However, Lessee will continue to measure the lease liability and the right-of-use asset for this lease in the same manner throughout the remainder of the lease term.
","snippet":"At the end of Year 2, the carrying amount of the lease liability is $80,511, and the carrying amount of the right-of-use asset is $71,855 (the carrying amount of the lease liability of $80,511 - the accrued lease payment…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:379dee8dc917ac4563160377d009b37bb952cf8e88184c3fd648de43cb59e1f0","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-47","para":"55-47","html":"
Example 5 illustrates impairment of a right-of-use asset.
","snippet":"Example 5 illustrates impairment of a right-of-use asset.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:4dbf63c80e16706790fef63ab9da27c235cd45f84bff30a01ebfb4a6fc17674b","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-48","para":"55-48","html":"
Lessee enters into a 10-year lease of a nonspecialized asset. Lease payments are $10,000 per year, payable in arrears. The lease does not transfer ownership of the underlying asset or grant Lessee an option to purchase the underlying asset. At lease commencement, the remaining economic life of the underlying asset is 50 years, and the fair value of the underlying asset is $600,000. Lessee does not incur any initial direct costs as a result of the lease. Lessee's incremental borrowing rate is 7 percent, which reflects the fixed rate at which Lessee could borrow the amount of the lease payments in the same currency, for the same term, and with similar collateral as in the lease at commencement. The lease is classified as an operating lease.
","snippet":"Lessee enters into a 10-year lease of a nonspecialized asset. Lease payments are $10,000 per year, payable in arrears. The lease does not transfer ownership of the underlying asset or grant Lessee an option to purchase t…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0cacceb5d3a8d597bbf4d0d4a7a69d4cecc199b77101dd6bff252b7400846a81","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-49","para":"55-49","html":"
At the commencement date, Lessee recognizes the lease liability of $70,236 (the present value of the 10 lease payments of $10,000, discounted at the rate of 7 percent). Lessee also recognizes a right-of-use asset of $70,236 (the initial measurement of the lease liability). Lessee determines the cost of the lease to be $100,000 (the total lease payments for the lease term). The annual lease expense to be recognized is therefore $10,000 ($100,000 ÷ 10 years).
","snippet":"At the commencement date, Lessee recognizes the lease liability of $70,236 (the present value of the 10 lease payments of $10,000, discounted at the rate of 7 percent). Lessee also recognizes a right-of-use asset of $70,…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:39cced1fda0f82f050726abdc6440ba1cb2ad75ba7211ea912a49b57ad534517","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-50","para":"55-50","html":"
At the end of Year 3, when the carrying amount of the lease liability and the right-of-use asset are both $53,893, Lessee determines that the right-of-use asset is impaired in accordance with Section 360-10-35 and recognizes an impairment loss of $35,000. The right-of-use asset is part of an asset group that Lessee tested for recoverability because of a significant adverse change in the business climate that affects Lessee's ability to derive benefit from the assets within the asset group. The portion of the total impairment loss for the asset group allocated to the right-of-use asset in accordance with paragraph 360-10-35-28 is $35,000. After the impairment charge, the carrying amount of the right-of-use asset at the end of Year 3 is $18,893 ($53,893 - $35,000). Because of the impairment, the total expense recognized in Year 3 is $45,000 ($10,000 in lease expense + the $35,000 impairment charge). Beginning in Year 4, and for the remainder of the lease term, the single lease cost recognized by Lessee in accordance with paragraphs 842-20-25-6(a) and 842-20-25-7 will equal the sum of the following:
  1. a
    Amortization of the right-of-use asset remaining after the impairment ($18,893 ÷ 7 years = $2,699 per year)
  2. b
    Accretion of the lease liability. For example, in Year 4, the accretion is $3,773 ($53,893 × 7%) and, in Year 5, the accretion is $3,337 ($47,665 × 7%).
","snippet":"At the end of Year 3, when the carrying amount of the lease liability and the right-of-use asset are both $53,893, Lessee determines that the right-of-use asset is impaired in accordance with Section 360-10-35 and recogn…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7974125da56a59dd5f7535b8aa3b7da98eef9edc1e81bc8e4ad670fe89f75b7f","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-51","para":"55-51","html":"
Consequently, at the end of Year 4, the carrying amount of the lease liability is $47,665 (that is, calculated as either the present value of the remaining lease payments, discounted at 7 percent, or the previous balance of $53,893 - $10,000 Year 4 lease payment + the $3,773 accretion of the lease liability). The carrying amount of the right-of-use asset is $16,194 (the previous balance of $18,893 - $2,699 amortization). Lessee measures the lease liability and the right-of-use asset in this manner throughout the remainder of the lease term.
","snippet":"Consequently, at the end of Year 4, the carrying amount of the lease liability is $47,665 (that is, calculated as either the present value of the remaining lease payments, discounted at 7 percent, or the previous balance…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:46ce93e45d23609768c9bb38d18424767f7841507ea3edeea8b57cb26d1169e2","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-52","para":"55-52","html":"
Example 6 illustrates how a lessee may meet the quantitative disclosure requirements in paragraph 842-20-50-4.
","snippet":"Example 6 illustrates how a lessee may meet the quantitative disclosure requirements in paragraph 842-20-50-4.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b6cdda5987051b381ec2cadd91e2bd2ebcd2efe6c8f5c04ed11cb3467e0b7a0b","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},{"citation":"842-20-55-53","para":"55-53","html":"
The following Example illustrates how a lessee may meet the quantitative disclosure requirements in paragraph 842-20-50-4.
","snippet":"The following Example illustrates how a lessee may meet the quantitative disclosure requirements in paragraph 842-20-50-4.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:006e840b2a37be96896f23d47bf870432bed70171d68ec8c96670857f89ab681","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:0d8844eb46903a00604b333610f453df7755b821f20998b2b8fe7620e2fdbd02","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:eda07bdf5139429777bd1cd4659302d1e13ee5ce41eac1ca3a13a1825b01952c","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}},"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:eda07bdf5139429777bd1cd4659302d1e13ee5ce41eac1ca3a13a1825b01952c","downloaded_from":"2026-09-10T01:56:58.743Z","last_downloaded_at":"2026-09-10T01:56:58.743Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147479589","source_sha256":"b0af3768b25ee5a3e3b013714fb1236249fe9884530519d6a77f2c0dff7259ac"}}