WB 4

Question 1

What are the 5 items which are recognised/affect the initial measurement of the right-of-use assets?
(IFRS 16 Leases)

Answer 1

1. The initial measurement of the lease liability
2. Lease payments made at or before the commencement dates
3. Any lease incentives received are deducted
4. Initial direct costs incurred by the lease
5. Estimate costs to be incurred by the lessee in dismantling and removing the underlying asset or restoring the underlying to a condition in line with the lease terms

Question 2

How do you depreciate leases (that are capitalised)?

Answer 2

You depreciate it by taking the initial cost measurement (which includes the 5 affecting factors) and divide it by:

the shorter of
- lease term
Or
- the asset’s useful life

UNLESS: the legal ownership is to be transfered at the end of the lease, and then it will be depreciate over the asset’s useful life