Which items are included in calculating the right of use asset?

Which items are included in calculating the right of use asset?

• A. Direct costs only
• B. Incurred payments plus lease liability
• C. Lease liability plus incurred payments plus direct costs
• D. Lease liability plus depreciation

Answer: (C)

Under IFRS 16, when a lease is recognized the right-of-use asset is measured initially as the sum of the lease liability plus any payments made at or before the commencement date plus any initial direct costs incurred (and then adjusted for any lease incentives received). This means you include three things: the lease liability (the present value of future lease payments), any incurred payments before or at the start, and the initial direct costs. Depreciation relates to expense recognition over the lease term, not the initial measurement. So the correct option includes lease liability, incurred payments, and direct costs.

Under IFRS 16, when a lease is recognized the right-of-use asset is measured initially as the sum of the lease liability plus any payments made at or before the commencement date plus any initial direct costs incurred (and then adjusted for any lease incentives received). This means you include three things: the lease liability (the present value of future lease payments), any incurred payments before or at the start, and the initial direct costs. Depreciation relates to expense recognition over the lease term, not the initial measurement. So the correct option includes lease liability, incurred payments, and direct costs.