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ROU Asset
The ROU Asset represents your right to use the leased asset. Its initial value equals the lease liability, adjusted for incentives, costs, and restoration.
Initial Measurement
ROU Asset = Lease Liability - Incentives + Direct Costs + Restoration
FRS 102 Reference: FRS 102.20.13-20.14
ROU Asset Calculation
Lease Liability: £100,000
Less: Incentives: (£5,000)
Add: Legal Costs: £2,000
Add: Restoration: £8,000
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ROU Asset: £105,000
Subsequent Measurement
The asset is depreciated straight-line over the lease term.
Depreciation
ROU Asset: £105,000
Lease Term: 60 months
Monthly Depreciation: £1,750
Common Misconception
Incentives reduce the ROU Asset, NOT the liability.
Important
The liability is always the present value of cash payments. Incentives only reduce the ROU Asset.