01 · RESEARCH
02 · ANALYZE
03 · DRAFT
01 ASC 842-10-25 · Lease classification 5-criteria test
Ownership transfer
Purchase option
Term ≥ 75% life
PV ≥ 90% FV
Specialized asset
→ Operating lease
02 Source contract · Extracted terms 9 terms
Office Lease Agreement · 5Y · $510K
TERM 5 years (Jan '26 – Dec '30)§3.1
RENT $8,500/month · $510K total§4.1
ASSET FV $180K · ~15Y economic life§2.2
PV PMTS $142K · 79% of FVSch. A
03 Memo · Lease classification Drafted
None of the five ASC 842-10-25-2 finance-lease criteria are met1; PV of payments is ~79% of fair value and term is ~33% of economic life2. Classified as an operating lease3.
[1] ASC 842-10-25-2
[2] ASC 842-10-25-2(c)(d)
[3] Lease §3.1
92 paragraphs scanned
ASC 842 ASC 360 ASC 820 ASC 606
Technical Accounting — research, extract contract terms, and draft a defensible memo