BLM17035 - Lease accounting under IFRS 16 and FRS 102 (2024 amendments): initial measurement of right-of-use asset and lease liability

This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.

Initial measurement of right-of-use asset听(IFRS 16.23 &听24; FRS听102 (2024 amendments) 20.47)听

The right-of-use asset is initially measured at cost, comprising听of:听

  • the amount of the initial听measurement of the lease liability (as described below);听

  • any lease payments made at or before commencement date, less any lease incentives received;听

  • any initial听direct costs incurred by the lessee; and听

  • an estimate of any dismantling, removal or restoration costs required by the lease.听

Initial measurement of the lease liability听(IFRS 16.26 &听27; FRS 102 (2024 amendments) 20.49)听

Initially, the lease liability should be calculated at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if this cannot be readily determined, the lessee鈥檚 incremental borrowing rate.听

The lease payments included in the measurement of the lease liability comprises听the following payments for the right to use the underlying asset during the lease term that are not paid at the commencement date:听

  • fixed payments (including any in-substance fixed payments), less any lease incentives receivable;听

  • variable lease payments that depend on an index or a rate, initially measured using the index or rate at commencement date;听

  • amounts expected to be payable by the lessee under residual value guarantees;听

  • the exercise price of a purchase option if the lessee is reasonably certain听to exercise that option; and听

  • payments of penalties for terminating听the lease, if the lease term reflects the lessee exercising an option听to terminate听the lease.听

听