Under AASB 16: Leases, a lessee's initial measurement of a right-of-use (ROU) asset involves several steps:

1. Identify the Lease: The first step is to identify the lease agreement and ensure it meets the definition of a lease under AASB 16. This means the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

2. Determine the Lease Term: The lease term is the non-cancellable period for which the lessee has the right to use the underlying asset, together with periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option, and periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.

3. Calculate the Lease Liability: The lease liability is the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the lessee’s incremental borrowing rate.

4. Measure the Right-of-Use Asset: The ROU asset is initially measured at cost, which includes the initial amount of the lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received, plus any initial direct costs incurred by the lessee.

5. Record the Right-of-Use Asset and Lease Liability: The lessee then records the ROU asset and the lease liability on the balance sheet at the commencement date of the lease.

6. Subsequent Measurement: After the commencement date, the lessee measures the ROU asset using a cost model (less any accumulated depreciation and any accumulated impairment losses) and measures the lease liability by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made, and remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.

By following these steps, a lessee can accurately measure a right-of-use asset under AASB 16: Leases.

Question

Under AASB 16: Leases, a lessee's initial measurement of a right-of-use (ROU) asset involves several steps:

1. Identify the Lease: The first step is to identify the lease agreement and ensure it meets the definition of a lease under AASB 16. This means the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

2. Determine the Lease Term: The lease term is the non-cancellable period for which the lessee has the right to use the underlying asset, together with periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option, and periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.

3. Calculate the Lease Liability: The lease liability is the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the lessee’s incremental borrowing rate.

4. Measure the Right-of-Use Asset: The ROU asset is initially measured at cost, which includes the initial amount of the lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received, plus any initial direct costs incurred by the lessee.

5. Record the Right-of-Use Asset and Lease Liability: The lessee then records the ROU asset and the lease liability on the balance sheet at the commencement date of the lease.

6. Subsequent Measurement: After the commencement date, the lessee measures the ROU asset using a cost model (less any accumulated depreciation and any accumulated impairment losses) and measures the lease liability by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made, and remeasuring the carrying amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.

By following these steps, a lessee can accurately measure a right-of-use asset under AASB 16: Leases.

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