Weighted Average Remaining Lease Term and Discount Rate: How to Calculate Both

The weighted average remaining lease term is the average time left on a lessee's leases at the reporting date, with each lease weighted by its lease liability balance. ASC 842-20-50-4(g)(3) requires it in the lease footnote, shown separately for operating and finance leases. Its companion, the weighted-average discount rate under ASC 842-20-50-4(g)(4), uses a different weight: each lease's remaining lease payments. This page shows both calculations on a four-lease portfolio, with every input stated.

Both figures sit among the quantitative amounts that ASC 842-20-50-4 lists. For everything else in that note, see our guide to quantitative lease disclosures and our overview of the full ASC 842 lease footnote. This page covers only the arithmetic behind these two lines.

What do the two weighted averages tell a reader?

A reader of your statements sees one lease liability on the balance sheet. The weighted averages tell them two things about it. The term says roughly how long the obligation runs. The rate says roughly what interest cost is built into it.

An analyst uses them to judge how fast the liability will unwind and how sensitive it was to the rates you picked. An auditor uses them as a reasonableness check. If the disclosed rate sits far from the rates in your lease schedules, they will ask why.

ASC 842-20-50-4(g) lists both items among the amounts that must be "segregated between those for finance and operating leases." So you calculate four numbers, not two. ASC 842-20-50-5 then points to paragraphs 842-20-55-11 and 55-12 for how to prepare them.

How do you calculate the weighted average remaining lease term?

ASC 842-20-55-11 sets the weights. The lessee "should calculate the weighted-average remaining lease term on the basis of the remaining lease term and the lease liability balance for each lease as of the reporting date." In practice that is three steps for each lease class:

• Multiply each lease's liability balance by its remaining lease term in years.
• Add up those products.
• Divide the sum by the total lease liability for that class.

Two inputs need care. The remaining lease term starts from the lease term as ASC 842-10-30-1 defines it: the noncancellable period, plus three kinds of option period.

• An extension option you are reasonably certain to exercise.
• A termination option you are reasonably certain not to exercise.
• Any extension or termination option the lessor controls.

Then take out the time already elapsed.

The liability balance is the carrying amount at the reporting date, the same figure that ties to your general ledger.

Remaining terms rarely land on whole years. Express them in years with decimals, such as 2.25 years for 27 months. The KPMG example cited below does the same.

If a lease was remeasured during the year, use the term and balance after the remeasurement. Our note on lease term changes covers when that happens.

What do you weight the discount rate for leases by?

The weight changes for the rate. ASC 842-20-55-12 bases the weighted-average discount rate on two things for each lease at the reporting date. The first is the discount rate used to calculate that lease's liability. The second is "the remaining balance of the lease payments."

ASC 842-20-55-12 does not say whether those remaining payments are discounted. In the discount rate example in KPMG's Handbook: Leases (Example 12.2.20), the weights are each lease's remaining payments. They are larger than the same leases' liabilities in the term example beside it (Example 12.2.10), so KPMG weights by undiscounted payments. The two paragraphs name different weights: the lease liability for the term, the remaining lease payments for the rate.

The rate itself is the one you used to measure that lease. For many private companies that is the incremental borrowing rate or, for a class where they elected it under ASC 842-20-30-3, a risk-free rate. You do not re-estimate it at year-end. You take it from the lease schedule as it stands.

A worked example: four operating leases at December 31, 2025

Take a lessee with four operating leases and no finance leases. Every lease pays a fixed amount once a year, at the end of each year. Each lease liability below is the present value of its remaining payments at its own discount rate, rounded to the dollar. You can recompute any of them from the inputs shown.

Step 1: the weighted average remaining lease term

Multiply each liability by its remaining term, then divide by the total liability.

6,636,307 ÷ 1,159,938 = 5.72 years. That is the weighted-average remaining lease term for operating leases.

Step 2: the weighted-average discount rate

Following KPMG's example, multiply each lease's undiscounted remaining payments by its rate, then divide by total remaining payments.

$73,500 ÷ $1,380,000 = 5.33%. That is the weighted-average discount rate for operating leases.

The footnote line would read: weighted-average remaining lease term, operating leases, 5.72 years; weighted-average discount rate, operating leases, 5.33%. If the company also had finance leases, it would run the same two tables for them alone and show those results in their own column.

What goes wrong when the averages are calculated?

Most errors in these two lines come from using the wrong population or the wrong weight. Here is what each one does to the example above.

• Weighting by lease count. A plain average of the four terms is 4.75 years, not 5.72. A plain average of the four rates is 5.69%, not 5.33%. Small leases get the same say as the headquarters lease, which carries over half the liability.
• Using the original term. Suppose the four leases started as 10, 5, 10 and 3 year leases. Weighting those original terms by the same liabilities gives 8.72 years. The standard asks for the remaining term at the reporting date, and 55-11 says so in its first words.
• Weighting the rate by the liability instead. ASC 842-20-55-12 names the remaining lease payments, not the liability, and KPMG's example uses undiscounted payments. Weighting by the liabilities gives 5.30% here instead of 5.33%. The gap grows when rates vary widely across leases, because discounting shrinks the weight of long and high-rate leases.
• Mixing operating and finance leases. One blended figure does not meet ASC 842-20-50-4(g), which requires the items segregated between the two classes.
• Balances that do not tie. The liability column should add to the operating lease liability on the balance sheet. If it does not, fix that first. Our guide to lease liability reconciliation walks through it.

Do private companies have to disclose these weighted averages?

Yes. ASC 842-20-50-4(g) is written for lessees generally, and its text carves out no entity type. Deloitte's Leasing Roadmap, section 15.2 and PwC's Financial statement presentation guide, section 14.2 set out the same requirement.

Entities other than public business entities, including private companies, were required to apply ASC 842 for fiscal years beginning after December 15, 2021 (ASC 842-10-65-1), with earlier application permitted. The relief private companies do get sits elsewhere, such as the risk-free rate election in ASC 842-20-30-3. If you take that election, those risk-free rates are the ones that enter your weighted-average rate.

On the books, this is a year-end schedule, not a journal entry. Build it from the same lease-by-lease data behind your maturity analysis, keep it with the close file, and expect the auditor to foot it. Clean lease data upstream makes it quick. Our guide to real estate lease terms covers the fields to capture.

Frequently asked questions

How do you calculate the weighted average remaining lease term?

Multiply each lease's liability balance at the reporting date by its remaining lease term in years. Add those products, then divide by the total lease liability. Do it once for operating leases and once for finance leases, as ASC 842-20-55-11 describes.

What do you weight the lease discount rate by?

ASC 842-20-55-12 weights each lease's discount rate by the remaining balance of its lease payments at the reporting date. KPMG's Leases Handbook example uses undiscounted remaining payments for this weight, not the lease liability.

Do private companies disclose the weighted average remaining lease term?

Yes. ASC 842-20-50-4(g) applies to lessees generally, and the firm guides cited here set out the same requirement for these two figures. Private companies were required to apply it for fiscal years beginning after December 15, 2021.

Sources and further reading

• KPMG, Handbook: Leases, chapter 12, Examples 12.2.10 and 12.2.20, which reproduce ASC 842-20-50-4 and 842-20-55-11 through 55-12.
• Deloitte, Roadmap: Leasing, section 15.2, Lessee Disclosure Requirements.
• PwC Viewpoint, Financial statement presentation guide, section 14.2, Lessees.

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