Compute an initial ROU asset from lease liability, prepaid payments, initial direct costs, incentives, and restoration obligations.
Build the ROU asset when the lease liability is USD 1,800,000, prepaid rent is USD 40,000, lease incentive received is USD 75,000, and restoration obligation is USD 120,000. ROU asset = lease liability + commencement payments + initial direct costs + restoration obligation - lease incentives. The shortcut is to set the ROU asset equal to the liability every time. That works only when there are no commencement adjustments. Step 1 Start with the lease liability: USD 1,800,000. The liability is the anchor for the asset build-up. Step 2 Add prepaid lease payments made at or before commencement: +USD 40,000.…
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