# Initial Measurement of Lease Liability and ROU Asset

## Working

Present value of five payments of $25,000 in arrears, discounted at 7%:

| Year (t) | Payment | Discount factor 1/(1.07)^t | Present value |
|---|---|---|---|
| 1 | $25,000 | 0.93457944 | $23,364.49 |
| 2 | $25,000 | 0.87343873 | $21,835.97 |
| 3 | $25,000 | 0.81629788 | $20,407.45 |
| 4 | $25,000 | 0.76289521 | $19,072.38 |
| 5 | $25,000 | 0.71298618 | $17,824.65 |

Sum of present values:

23,364.48598 + 21,835.96821 + 20,407.44693 + 19,072.38031 + 17,824.65449 = **102,504.93592**

Equivalently, using the annuity factor: 25,000 × [1 − (1.07)⁻⁵] / 0.07 = 25,000 × 4.10019744 ≈ 102,504.94

## Answers

**(a) Initial lease liability = $102,504.94**

**(b) Initial right-of-use asset = $102,504.94** (equal to the lease liability, as there are no initial direct costs, incentives, prepayments or restoration costs)

**Governing standard: AASB 16 *Leases*** (the Australian equivalent of IFRS 16).