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FASB finalizes lessor ASC 842 amendment

Defining Issues | July 2021

Lessors will classify leases with variable payments as operating if another classification would trigger a Day 1 loss.


ASU 2021-05

  • All companies and not-for-profit entities

Relevant dates

  • July 19, 2021 – FASB issues final ASU
  • April 14, 2021 – FASB reaches final decision on lessor leases with variable payments that would trigger a Day 1 loss if classified as sales-type or direct financing – Tentative Decision
  • February 10, 2021 – FASB redeliberates ‘targeted improvements’ proposals, leaving only the issue of lessor leases with variable payments on its technical agenda and removing the other two issues – Tentative Decision
  • December 4, 2020 – Comments deadline on proposed ASU
  • October 20, 2020 – Proposed ASU with three ‘targeted improvements’ to ASC 842 issued
  • July 29, 2020 – Leasing and agenda-setting decisions reached; ‘targeted improvements’ project added to the technical agenda
Effective date
Public entities
All other entities

Annual periods – Fiscal years beginning after

December 15, 2021

December 15, 2021

Interim periods – In fiscal years beginning after

December 15, 2021

December 15, 2022

Early adoption allowed in fiscal years beginning after

Yes, but not before adopting ASC 842

Key Impacts:

Lessors will classify a lease with variable payments that do not depend on an index or rate as an operating lease if:

  • the lease would have been classified as a sales-type lease or a direct financing lease under the pre-ASU lease classification criteria; and
  • sales-type or direct financing lease classification would result in a Day 1 loss.  

Report contents

  • Applicability
  • Fast facts, impacts, actions
  • Background
  • Final amendment
  • Effective dates and transition

Download the document:

FASB finalizes lessor ASC 842 amendment

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