Hot Topic | May 2021

 

Insight

Lessee discount rates under ASC 842

Key considerations for public and private entity lessees when determining the discount rates for leases.

Determining an appropriate lessee discount rate under ASC 842 will frequently be neither a straightforwarded exercise nor the same as under ASC 840, particularly for private entities.

Applicability

  • All lessees that have applied or will apply ASC 842

Relevant dates

Effective Public companies Public not-for-profit entities Private entities

Annual periods – Fiscal years beginning after                                                                                    

December 15, 2018

December 15, 2019

December 15, 2021

Interim periods – In fiscal years beginning after     

December 15, 2018

December 15, 2019

December 15, 2022

Early adoption allowed?

N/A

N/A

Immediately

 

Key impacts

  • Clarifies how a lessee applies ASC 842 to determine a lease’s discount rate
  • Discusses how forthcoming proposed amendments may impact the private entity risk-free rate practical expedient
  • Provides reminders and examples on how to determine the incremental borrowing rate

Report contents

  • Key impacts
  • Rate implicit in the lease
  • Risk-free discount rate practical expedient (private entities only)
  • Incremental borrowing rate
  • Examples

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