Route the lessor's three models

The lessor sees the same contract but owns the underlying asset and bears residual and collection risk. Reverse the perspective, not the entries.

Route sales-type first

Apply the transfer-style criteria. If any is met, the lease is ordinarily sales-type. Under a probable collectibility conclusion, derecognize the underlying asset, recognize net investment, and recognize selling profit or loss at commencement. Later periods recognize interest on net investment.

When collectibility is not probable, the deposit-liability path can delay derecognition and profit. A cash receipt is not the same as a probable collectibility conclusion.

Then test direct financing

If no sales-type criterion is met, ask whether collection of lease payments and applicable residual guarantee is probable and whether the present-value condition is supported through the lessee and any unrelated third party. If both hold, classify as direct financing.

Direct-financing selling profit and qualifying initial direct costs are deferred in net investment. The schedule therefore may use a net-investment yield different from the gross measurement rate. It must settle after receipts to the expected residual.

Checkpoint: stop before the operating lane

For the sales-type and direct-financing files, name the asset remaining after commencement, day-one profit treatment, initial-direct-cost treatment, later income source, and ending residual. If either file still uses the underlying asset, lease receivable, and net investment as synonyms, repair the first two lanes before continuing.

Operating is a retained-asset model

If neither financing route applies, retain PP&E, continue depreciation and impairment accounting, recognize lease income on the supported pattern, and amortize deferred initial direct costs on that same basis. Do not create net investment.

Keep residuals separated

The lease receivable includes the PV of unpaid payments and applicable guaranteed residual. The unguaranteed residual asset is separate. For direct financing, net deferred selling profit. The lessor's risk register names who guarantees what, the estimated unguaranteed amount, valuation owner, and sensitivity.

ASU 2021-05 forces operating classification only for the narrow combination of specified excluded variable payments and an otherwise recognized day-one selling loss. Do not generalize it to every variable-payment lease.

Exit check

Reconcile all three lanes in the lessor example. For each, identify the asset remaining after commencement, day-one result, subsequent income source, initial-direct-cost treatment, residual exposure, and collectibility control.