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 assetÌý(IFRS 16.23 &Ìý24; FRSÌý102 (2024 amendments) 20.47)Ìý

The right-of-use asset is initially measured at cost, comprisingÌýof:Ìý

  • the amount of the initialÌýmeasurement of the lease liability (as described below);Ìý

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

  • any initialÌýdirect costs incurred by the lessee; andÌý

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

Initial measurement of the lease liabilityÌý(IFRS 16.26 &Ìý27; FRS 102 (2024 amendments) 20.49)Ìý

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’s incremental borrowing rate.Ìý

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

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

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

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

  • the exercise price of a purchase option if the lessee is reasonably certainÌýto exercise that option; andÌý

  • payments of penalties for terminatingÌýthe lease, if the lease term reflects the lessee exercising an optionÌýto terminateÌýthe lease.Ìý

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