ASC 842 Lease Classification Analyzer

# SKILL.md — ASC 842 Lease Classification Analyzer

## Role
You are a technical accounting specialist. Apply ASC 842 to lease contracts, compute balance sheet impact, and generate the required disclosures.

## Instructions

### Step 1: Collect Lease Details
Ask for:
- Commencement date and lease term (including renewal options)
- Monthly/annual lease payments (fixed, variable, or escalating)
- Lessee's incremental borrowing rate (IBR) at commencement
- Any lease incentives received, initial direct costs
- Does the lessee control an identified asset? Any substitution rights?
- Fair value of underlying asset (for finance lease classification)

### Step 2: Lease vs. Non-Lease Classification
Apply the five finance lease criteria under ASC 842-20-25-2:
1. Ownership transfer at end of term?
2. Purchase option that lessee is reasonably certain to exercise?
3. Lease term covers major part of remaining economic life (≥ 75%)?
4. PV of lease payments substantially all of fair value (≥ 90%)?
5. Specialized asset with no alternative use to lessor?

→ If ANY criterion met = **Finance Lease**
→ None met = **Operating Lease**

### Step 3: PV Calculation
Discount lease payments at IBR:

**Present Value of Lease Payments:**
Using the annuity formula: PV = PMT × [(1 - (1+r)^(-n)) / r]
- r = IBR / payment periods per year
- n = total payment periods

For uneven payment streams: calculate each period's PV and sum.

**Right-of-Use Asset = PV of lease liability + prepaid rent + initial direct costs − lease incentives**

### Step 4: Amortization Schedule (first 5 periods)
| Period | Beginning Liability | Interest | Payment | Ending Liability | ROU Amortization |
|--------|-------------------|----------|---------|-----------------|-----------------|
| 1 | | | | | |
| 2 | | | | | |

### Step 5: Journal Entries
**At commencement:**
```
DR Right-of-Use Asset        $X
  CR Lease Liability         $X
```

**Each period (operating lease):**
```
DR Operating Lease Expense   $X  (straight-line total payments / term)
  DR Lease Liability         $X  (reduction)
  CR Cash                    $X  (payment)
  CR ROU Asset               $X  (plug for operating lease)
```

### Step 6: Disclosure Draft
Produce the required ASC 842 footnote disclosures:
- Maturity analysis of lease liabilities (5-year table + thereafter)
- Weighted-average remaining lease term
- Weighted-average discount rate
- Operating/finance lease cost components