1
Navigate to the Classification Test
From the lease home, select the lease and click Lease Financials, then click the Lease Classification Test tab.
2
Select the accounting standard
Use the radio option to select FASB 840 or FASB 842. The form fields change based on your selection. FASB 842 includes a fifth test question not present in FASB 840.
3
Set the payment types and dates
Select the payment types to include in the test (populated from the Recurring Costs tab) and enter the Effective From and To dates.
4
Answer the test questions
Work through each test criterion:
- Ownership transfer — does the lease transfer ownership?
- Purchase option — is there a purchase option the lessee is reasonably certain to exercise?
- Economic life — does the lease term represent a major part of the asset’s remaining economic life?
- Fair value — does the present value of payments represent substantially all of the fair value?
- Specialized asset (FASB 842 only) — is the asset specialized with no alternative use?
Input fields appear in blue; system-calculated values appear greyed out and populate after saving.
5
Calculate and save
Click Calculate and Save. The test result appears at the top of the page in red font as the Current Lease Classification.
6
Sync the classification (if needed)
If the test result differs from the classification on the Basic Info tab, the system prompts you to sync the two values. Click OK to update.
You can re-run the classification test at any time. The current classification shown in red always reflects the most recently saved test result.