# ASC 842-50-30: Leases — Leveraged Lease Arrangements — 30 Initial Measurement Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/842/50/#30-initial-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): 2026-09-10T01:58:17.067Z to 2026-09-10T01:58:17.067Z Record version: sha256:a32f47f93a93fffd1cc85153863344c0113248d89087a3845c10a93d2717c517 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-50-30: 30 Initial Measurement [Read section](https://asc.understandingaccounting.org/asc/842/50/#30-initial-measurement) SEC content: no ##### [842-50-30-1](https://asc.understandingaccounting.org/asc/842/50/#842-50-30-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:58:17.067Z to 2026-09-10T01:58:17.067Z Record version: sha256:36a6a9267ca1e3e84004aeaced6fa3676e9e63d8c81018e9e9797b92d0caac88 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A [lessor](https://asc.understandingaccounting.org/glossary/l/#lessor "An entity that enters into a contract to provide the right to use an underlying asset for a period of time in exchange for consideration.") shall initially measure its investment in a [leveraged lease](https://asc.understandingaccounting.org/glossary/l/#leveraged-lease "From the perspective of a lessor, a lease that was classified as a leveraged lease in accordance with the leases guidance in effect before the effective date and for which the commencement date is before the effective date.") net of the nonrecourse debt (as discussed in paragraph [842-50-25-1](https://asc.understandingaccounting.org/asc/842/50/#842-50-25-1)). The net of the balances of the following accounts shall represent the initial and continuing investment in leveraged leases: 1. a Rentals receivable, net of that portion of the rental applicable to principal and interest on the nonrecourse debt. 2. b A receivable for the amount of the investment tax credit to be realized on the transaction. 3. c The [estimated residual value](https://asc.understandingaccounting.org/glossary/e/#estimated-residual-value "The estimated fair value of the leased property at the end of the lease term.") of the leased asset. The estimated residual value shall not exceed the amount estimated at [lease inception](https://asc.understandingaccounting.org/glossary/l/#lease-inception "The date of the lease agreement or commitment, if earlier. For purposes of this definition, a commitment shall be in writing, signed by the parties in interest to the transaction, and shall specifically set forth the principal provisions of the transaction. If any of the principal provisions are yet to be negotiated, such a preliminary agreement or commitment does not qualify for purposes of this definition.") except 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.") agreement includes a provision to escalate [minimum lease payments](https://asc.understandingaccounting.org/glossary/m/#minimum-lease-payments "Minimum lease payments comprise the payments that the lessee is obligated to make or can be required to make in connection with the leased property, excluding both of the following: Contingent rentals Any guarantee by the lessee of the lessor's debt and the lessee's obligation to pay (apart from the rental payments) executory costs such as insurance, maintenance, and taxes in connection with the leased property. If the lease contains a bargain purchase option, only the minimum rental payments over the lease term and the payment called for by the bargain purchase option are required to be included in the minimum lease payments. Otherwise, minimum lease payments include all of the following: The minimum rental payments called for by the lease over the lease term. Any guarantee of the residual value at the expiration of the lease term, whether or not payment of the guarantee constitutes a purchase of the leased property or of rental payments beyond the lease term by the lessee (including a third party related to the lessee) or a third party unrelated to either the lessee or the lessor, provided the third party is financially capable of discharging the obligations that may arise from the guarantee. If the lessor has the right to require the lessee to purchase the property at termination of the lease for a certain or determinable amount, that amount is required to be considered a lessee guarantee of the residual value. If the lessee agrees to make up any deficiency below a stated amount in the lessor's realization of the residual value, the residual value guarantee to be included in the minimum lease payments is required to be the stated amount, rather than an estimate of the deficiency to be made up. Any payment that the lessee must make or can be required to make upon failure to renew or extend the lease at the expiration of the lease term, whether or not the payment would constitute a purchase of the leased property. Note that the definition of lease term includes all periods, if any, for which failure to renew the lease imposes a penalty on the lessee in an amount such that renewal appears, at lease inception, to be reasonably assured. If the lease term has been extended because of that provision, the related penalty is not included in minimum lease payments. Payments made before the beginning of the lease term. The lessee is required to use the same interest rate to accrete payments to be made before the beginning of the lease term that it uses to discount lease payments to be made during the lease term. Fees that are paid by the lessee to the owners of the special-purpose entity for structuring the lease transaction. Such fees are required to be included as part of minimum lease payments (but not included in the fair value of the leased property). Lease payments that depend on a factor directly related to the future use of the leased property, such as machine hours of use or sales volume during the lease term, are contingent rentals and, accordingly, are excluded from minimum lease payments in their entirety. However, lease payments that depend on an existing index or rate, such as the Consumer Price Index or the prime interest rate, are required to be included in minimum lease payments based on the index or rate existing at lease inception; any increases or decreases in lease payments that result from subsequent changes in the index or rate are contingent rentals and, thus, affect the determination of income as accruable.") either for increases in construction or acquisition cost of the leased property or for increases in some other measure of cost or value (such as general price levels) during the construction or preacquisition period. In that case, the effect of any increases that have occurred shall be considered in the determination of the estimated residual value 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.") at lease inception. 4. d Unearned and deferred income consisting of both of the following: 1. 1 The estimated pretax lease income (or loss), after deducting initial direct costs, remaining to be allocated to income over 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."). 2. 2 The investment tax credit remaining to be allocated to income over the lease term. #### Leveraged Lease Acquired in a Business Combination or an Acquisition by a Not-for-Profit Entity ##### [842-50-30-2](https://asc.understandingaccounting.org/asc/842/50/#842-50-30-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:58:17.067Z to 2026-09-10T01:58:17.067Z Record version: sha256:1239fc68480830a99be35ad248e72b4e1a781f22f87c7557329022cf34bb3156 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In a business combination or an [acquisition by a not-for-profit entity](https://asc.understandingaccounting.org/glossary/a/#acquisition-by-a-not-for-profit-entity "A transaction or other event in which a not-for-profit acquirer obtains control of one or more nonprofit activities or businesses and initially recognizes their assets and liabilities in the acquirer's financial statements. When applicable guidance in Topic 805 is applied by a not-for-profit entity, the term business combination has the same meaning as this term has for a for-profit entity. Likewise, a reference to business combinations in guidance that links to Topic 805 has the same meaning as a reference to acquisitions by not-for-profit entities."), the acquiring entity shall assign an amount to the acquired net investment in the [leveraged lease](https://asc.understandingaccounting.org/glossary/l/#leveraged-lease "From the perspective of a lessor, a lease that was classified as a leveraged lease in accordance with the leases guidance in effect before the effective date and for which the commencement date is before the effective date.") in accordance with the general guidance in Topic 805 on business combinations, based on the remaining future cash flows and giving appropriate recognition to the estimated future tax effects of those cash flows.