Differences Between ASC 840 and ASC 842: Discount Rate Used



George Azih:

Another difference is the discount rate used. What rate would you use? I’m under 842, currently. We’re going to spend a lot of time discussing the discount rates in our future presentations, but this is just a quick overview, as I mentioned. The discount rate used under 840 is the rate at which it would cost you to purchase the underlying asset. What rate would a bank give you if you had to purchase the underlying asset? Under 842, the discount rate used would be: What rate would a bank give you to satisfy your obligations under the lease for collateralized debt? Collateralized debt. If you were to go to a bank to borrow the amount of money that would satisfy your lease obligation … If it’s $1,000 dollars per month for 60 months, so $60,000 dollars. That’s very different from the amount to purchase the asset.