## Initial Lease Liability and Right-of-Use Asset

### (a) Initial Lease Liability

The initial lease liability is the present value of the five annual lease payments of $25,000, discounted at 7%:

$$
\text{Liability} = \sum_{t=1}^{5} \frac{25{,}000}{(1.07)^t}
$$

| Year (t) | Payment | Discount Factor (1.07)^t | Present Value |
|----------|---------|--------------------------|---------------|
| 1 | $25,000.00 | 1.0700 | $23,364.49 |
| 2 | $25,000.00 | 1.1449 | $21,835.97 |
| 3 | $25,000.00 | 1.2250 | $20,407.45 |
| 4 | $25,000.00 | 1.3108 | $19,072.38 |
| 5 | $25,000.00 | 1.4026 | $17,824.65 |
| **Total** | | | **$102,504.94** |

**Initial lease liability = $102,504.94**

### (b) Initial Right-of-Use Asset

With no initial direct costs, lease incentives, prepaid lease payments, or restoration costs, the ROU asset equals the initial lease liability:

**Initial ROU asset = $102,504.94**

### Governing Accounting Standard

This measurement is governed by **AASB 16 *Leases***.