Right-of-use asset is a leased asset in a lease arrangement

Right-of-use asset

An asset that represents a lessee’s right to use an underlying asset for the lease term.

The right-of-use asset is depreciated over the lease term

  • The carrying amount of the asset and liability will no longer be equal in subsequent periods
  • In general, the asset will be below the carrying value of the lease liability as the asset will be depreciated on a straight-line basis while the effective interest rate method on the lease liability results in a decreasing lease expense throughout the lease term

Lease extensions – change in lease liability with an adjustment to the right-of-use asset

Modification to a lease – treatment will depend on modification:

  • decrease or increase in scope: adjust lease liability and right-of-use asset, with profit or loss impact if a decrease in scope
  • increase in scope with increase in lease consideration: separate lease contract

Example disclosure of first-time application of IFRS 16 Leases:

IFRS 16 is effective from 1 January 2019. The standard eliminates the classification of leases as either operating or finance leases and introduces a single accounting model. Lessees will be required to recognise a right-of-use asset and related lease liability for the majority of their operating leases and show depreciation of leased assets and interest on lease liabilities separately in the income statement. IFRS 16 will require the Group to recognise substantially all of its operating leases on the balance sheet.

The right-of-use asset and lease liability will initially be measured at the present value of the remaining lease payments, with the right-of-use asset being subject to certain adjustments. The estimated right-of-use asset and lease liability recorded on the balance sheet as of 1 January 2019 will be approximately £2.0 billion to £2.5 billion. Depreciation of the right-of-use asset and recognition of interest on the lease liability in the income statement will replace amounts recognised as rent expense under IAS 17, resulting in an estimated increase to operating margin of approximately 0.4 to 0.6 margin points and an estimated decrease to diluted earnings per share of approximately 1.3p to 1.6p.


A contract conveys the right to control the use of an identified asset if the customer has both the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset throughout the period of use/lease.

General model of measurement of insurance contracts

Right-of-use asset

Right-of-use asset

Right-of-use asset Right-of-use asset Right-of-use asset Right-of-use asset Right-of-use asset

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