Discount rate
In one sentence
The discount rate is the rate used to present-value the lease payments — the rate implicit in the lease if determinable, otherwise the incremental borrowing rate (or, for some entities, a risk-free rate).
The discount rate converts future lease payments into their present value. Use the rate implicit in the lease when readily determinable; otherwise use the incremental borrowing rate. Non-public business entities may elect to use a risk-free rate as a practical expedient, and since ASU 2021-09 that election can be made by class of underlying asset. Public business entities are not permitted the risk-free-rate expedient.
Cite: ASC 842-20-30-3
Incremental borrowing rate (IBR)
The incremental borrowing rate is the rate a lessee would pay to borrow, over a similar term and with similar security, the funds needed to obtain an asset of similar value.
Read definition →Present value of lease payments
The present value of lease payments is the sum of each future payment divided by (1 + periodic rate) raised to the number of periods until that payment.
Read definition →See Discount rate in a real calculation
Enter a lease and Ledgerage computes it — every figure traced back to the standard.