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ASC 842 lease calculator for lessees.

What is this money worth, or what does it cost, over time?

Initial lease liability, right-of-use asset and the full amortization table for an operating or finance lease, with escalations, initial direct costs, incentives and the risk-free rate election.

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Lease terms
Classification (ASC 842-10-25-2)
Payment timing
Discount rate

A lessee uses the rate implicit in the lease when it is readily determinable, otherwise its incremental borrowing rate. An entity that is not a public business entity may elect a risk-free rate by class of underlying asset, but must still use the implicit rate when that is readily determinable (ASC 842-20-30-3, as amended by ASU 2021-09). A lower rate gives a higher liability.

Initial lease liability
$537,154
Current $85,818 · non-current $451,336
Right-of-use asset
$522,154
Liability + prepaid + IDC − incentives
Straight-line cost per month
$10,368
Total lease cost $622,096
Amortization table
Lease yearPaymentsInterestROU amortizationLease costLiability, endROU asset, end
1$120,000$34,182$90,237$124,419$451,336$431,916
2$123,600$27,839$96,580$124,419$355,575$335,336
3$127,308$20,773$103,647$124,419$249,039$231,689
4$131,127$12,923$111,496$124,419$130,835$120,193
5$135,061$4,226$120,193$124,419$0$0
How this was worked out
Work shownrecomputed as you type
Periodic rate r = 7.000% ÷ 12 = 0.58333% · 60 payments at the start of each month
Lease liability = Σ payment ÷ (1 + r)^(k − 1) = $537,153.54 (undiscounted $637,096.30)
ROU asset = $537,153.54 + prepaid $0.00 + IDC $5,000.00 − incentives $20,000.00 = $522,153.54
Straight-line cost = (payments $637,096.30 + prepaid + IDC − incentives) ÷ 60 = $10,368.27 per month
ROU amortization each month = straight-line cost − interest on the liability (the plug)
Current liability = reduction in the liability over the next 12 months = $85,817.88

Measurement follows ASC 842-20-30-1 (liability = present value of unpaid lease payments) and 842-20-30-5 (ROU asset). Operating leases recognize a single straight-line lease cost (842-20-25-6); finance leases recognize interest and amortization separately (842-20-25-5, 842-20-35-7 to 35-9). Variable payments that do not depend on an index or rate, residual value guarantees, purchase options and modifications are not modeled.

What ASC 842-20 requires of the lessee

At commencement a lessee recognizes a lease liability, the present value of unpaid lease payments, and a right-of-use asset (ASC 842-20-30-1 and 30-5). An operating lease then recognizes a single lease cost on a straight-line basis (ASC 842-20-25-6); a finance lease recognizes interest on the liability and amortization of the ROU asset separately (ASC 842-20-25-5 and 35-7 to 35-9). Leases of 12 months or less may use the short-term exemption (ASC 842-20-25-2).

In the audit, recompute the liability from the signed lease: the term including renewals reasonably certain to be exercised, the fixed and in-substance fixed payments, and the discount rate. The discount rate is the judgment that moves the number most, so document how management arrived at the incremental borrowing rate, or that the risk-free election was made for the whole asset class.

Common questions

How is the ASC 842 lease liability calculated?

It is the present value of the lease payments not yet paid, discounted at the rate implicit in the lease or, if that is not readily determinable, the lessee’s incremental borrowing rate (ASC 842-20-30-1 and 30-3). $1,000 a month in arrears for 36 months at 5% has a present value of about $33,365.70.

How is the right-of-use asset measured?

ROU asset = lease liability + lease payments made at or before commencement + initial direct costs − lease incentives received (ASC 842-20-30-5).

What is the straight-line lease cost for an operating lease?

Total payments plus initial direct costs, less incentives, spread evenly over the lease term (ASC 842-20-25-6). The liability still accretes interest; the ROU asset amortization is the plug that keeps the total cost level.

Can a private company use a risk-free discount rate?

Yes. An entity that is not a public business entity can elect a risk-free rate, by class of underlying asset. Under ASU 2021-09 it must still use the rate implicit in the lease when that rate is readily determinable. A lower rate means a larger liability.

How does a finance lease differ?

A finance lease recognizes interest on the liability and straight-line amortization of the ROU asset separately, usually over the shorter of the lease term and the useful life. Total cost is higher in the early years and lower later.

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