What is a right-of-use asset?
A right-of-use (ROU) asset is the lessee's right to use a leased asset, such as an office, vehicle or equipment, for the lease term. Under IFRS 16 and ASC 842 it is recorded on the balance sheet at the start of a lease, alongside a lease liability for the payments, and reduced over the lease term.
Also calledROU assetright of use assetlease asset
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- Starts at
- Lease liability plus adjustments
- Standards
- IFRS 16 / ASC 842
- Paired with
- Lease liability
How a right-of-use asset is measured
At the commencement date the ROU asset equals the initial lease liability, which is the present value of the lease payments, plus lease payments made at or before commencement and initial direct costs, less lease incentives received, plus any estimated restoration costs. Under IFRS 16, and for finance leases under ASC 842, the asset is then depreciated, usually straight-line over the lease term, while interest accrues on the liability. For operating leases under ASC 842, the asset is reduced by a balancing figure so that total lease cost is straight-line. The asset is remeasured when the lease is modified or the term or payments change, and tested for impairment. Short-term leases, and low-value assets under IFRS 16, can be kept off the balance sheet. Trullion calculates ROU assets and lease liabilities from lease documents.
Common questions
How is a right-of-use asset calculated?+
Initial lease liability, plus payments made at or before the start, plus initial direct costs and estimated restoration costs, less lease incentives received.
Is a right-of-use asset depreciated?+
Under IFRS 16 and for ASC 842 finance leases, yes, usually straight-line. For ASC 842 operating leases it is reduced so that the total lease cost is straight-line.
Which leases do not need a right-of-use asset?+
Leases of 12 months or less, by policy election, and under IFRS 16 also leases of low-value assets. Their payments are expensed as they fall due.
Lease accounting software
Part of Accountio’s accounting technology coverage · Glossary
