What it is
The worksheet classifies each lease under the five criteria of ASC 842-10-25-2: ownership transfers by the end of the term, a purchase option the lessee is reasonably certain to exercise, a lease term that is a major part of the remaining economic life, present value of payments and lessee-guaranteed residual that is substantially all of fair value, and an asset so specialized it has no alternative use to the lessor. Meeting any one makes the lease a finance lease for a lessee and a sales-type lease for a lessor; otherwise a lessee has an operating lease.
The thresholds are inputs. ASC 842-10-55-2 describes one reasonable approach: 75% of remaining economic life as a major part, 90% of fair value as substantially all, and a commencement date in the last 25% of total economic life as at or near the end of economic life, which switches off the major-part test. For a lessor, the worksheet adds the direct financing test with third-party residual guarantees and probable collection. It also computes the present value of payments and the lessee’s lease liability at commencement.
When to use it
- Adopting ASC 842 or classifying new leases and modified leases.
- Audit of lease classification, where the auditor recomputes the percentage tests.
- Documenting the lease classification policy and the thresholds applied.
What’s inside
- Settings: role (lessee or lessor) and the three threshold percentages
- Classification: 30 leases with term, payments, rate, residual guarantees, fair value and economic life
- Each criterion shown as Met, Not met or not applicable, with the number of criteria met
- Present value of payments, of the lessee-guaranteed residual and of third-party guarantees
- Result and lessee lease liability at commencement, plus a summary by classification
Standard cited
This template follows ASC 842-10-25-2. It is written in our own words, except for phrases the standard requires the document to contain, with [bracketed placeholders] for client details, amounts in USD and dates as MM/DD/YYYY. Check it against the current standard and your firm’s methodology before use.
Questions
Are 75% and 90% required?
No. ASC 842 does not define “major part” or “substantially all”. ASC 842-10-55-2 describes a reasonable approach of 75% or more of remaining economic life and 90% or more of fair value. Document the thresholds you adopt as policy and apply them consistently; the workbook lets you change them.
When is the major-part test not applied?
When the commencement date falls at or near the end of the underlying asset’s economic life. Under the approach in ASC 842-10-55-2, that is the last 25% of the total economic life, and the worksheet shows the test as not applicable in that case.
Which discount rate do I use?
The rate implicit in the lease when it is readily determinable, otherwise the lessee’s incremental borrowing rate; an entity that is not a public business entity may elect a risk-free rate by class of underlying asset. The workbook discounts monthly payments at the annual rate divided by 12 and does not decide the rate.
What does the worksheet not cover?
Escalating or variable payments (compute the present value from an amortization schedule), the right-of-use asset adjustments, residual guarantee amounts probable of being owed, remeasurement and the subsequent amortization. Use the lease schedule template for the schedule.
Related templates
- ASC 842 Lease Schedule (Lessee)
- Disclosure Checklist: Leases (ASC 842), Lessee and Lessor
- Audit Program: Debt and Equity
- Debt and Interest Rollforward Schedule
Last updated 11/05/2026. All free templates.