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Funding a business
Assets Recognition in Lease
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[QUOTE="Yakub02, post: 310451, member: 94426"] A lease is capitalised at the commencement of the lease term. This involves the recognition of the asset that is subject to the lease (the underlying asset or right of-use asset) and a liability for the future lease payments. The initial double entry is based on the lease liability but the asset might also contain other components in its initial measurement. Initial measurement of the lease liability The lease liability is measured at the commencement date as the present value of the lease payments not yet paid at that date. The lease payments are discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the lessee’s incremental borrowing rate is used. Lessee’sincrementalborrowingrate:Therateofinterestthatalesseewouldhave to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The liability is the capital amount (the principal) that the lessee will have to pay back to the lessor over the term of the lease. It is the present value of the lessee’s lease payments. After the commencement date, a right-of-use asset is measured using a cost model unless it is a type of asset for which an alternative measurement model is being used. [/QUOTE]
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