What counts as an initial direct cost

Initial direct costs increase the right-of-use asset, so a figure entered there is capitalised and depreciated for the life of the lease. Until now the screen said what the category does to your figures, and nothing about what belongs in it.

It now says both. Initial direct costs are the incremental costs of obtaining the lease, meaning what you paid that you would not have paid had you not taken it: legal fees for the lease, agent or broker commission, survey and valuation fees, stamp duty land tax, a lease premium, and a payment to an outgoing tenant to take the lease on.

Three things commonly entered there do not qualify. Your own fit-out and leasehold improvements are your assets, held separately as property, plant and equipment. Costs you would have paid anyway, such as internal staff time, are not incremental. And anything the landlord pays or contributes is an incentive, which reduces the right-of-use asset rather than increasing it, so recording it as a cost moves the figure the wrong way twice over.