### Working and Calculations

The present value ($PV$) of the lease payments (an ordinary annuity) is calculated as follows:

$$PV = PMT \times \frac{1 - (1 + r)^{-n}}{r}$$

Where:
*   $PMT = \$25,000$ (annual lease payment)
*   $r = 7\% = 0.07$ (incremental borrowing rate)
*   $n = 5$ (lease term in years)

Calculating the present value factor:
$$\frac{1 - (1.07)^{-5}}{0.07} = \frac{1 - 0.71298618}{0.07} \approx 4.10019743$$

Calculating the initial lease liability:
$$PV = 25,000 \times 4.10019743 \approx 102,504.9359$$

Rounding to the nearest cent gives **$102,504.94**.

As there are no initial direct costs, lease incentives, prepaid lease payments, or restoration costs, the initial right-of-use (ROU) asset is equal to the initial lease liability.

### Answers

*   **(a) Initial lease liability:** $102,504.94
*   **(b) Initial right-of-use asset:** $102,504.94
*   **Governing accounting standard:** AASB 16 *Leases* (the Australian equivalent of international standard IFRS 16 *Leases*).