The formulas
- Base = r1 + (r2 - r1) x (term - t1) / (t2 - t1)
- IBR = base + security and credit adjustment
How it works
The ASC 842 glossary defines the incremental borrowing rate as the rate of interest a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
When observable rates exist only at set terms, linear interpolation gives the rate for the lease term in between. The adjustment field carries the step from your reference curve to a collateralized rate for this lessee; document how you set it.
Illustrative figures only. Check the result against your firm's methodology before relying on it.
Common questions
Why collateralized?
The definition specifies borrowing on a collateralized basis, so an unsecured rate is adjusted down for security.
Can I extrapolate beyond the curve?
The math works but the tool flags it, because the result then rests on the slope between two points outside the term.
Which term do I use for amortizing leases?
ASC 842 does not specify. Use the lease term or the weighted average life of the payments, and apply the choice consistently.
Sources
Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.