# AASB 16 Lease Measurement

## Calculation

**Initial Lease Liability** = Present value of lease payments discounted at 7%

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

Breaking down each payment:
- Year 1: $25,000 / 1.07 = $23,364.49
- Year 2: $25,000 / 1.1449 = $21,831.30
- Year 3: $25,000 / 1.2250 = $20,401.21
- Year 4: $25,000 / 1.3108 = $19,077.75
- Year 5: $25,000 / 1.4026 = $17,811.09

**Total: $102,485.84**

## Answers

**(a) Initial Lease Liability: $102,485.84**

**(b) Initial Right-of-Use Asset: $102,485.84**

## Accounting Standard

**AASB 16 Leases** governs this measurement. Specifically, AASB 16 paragraphs 22–24 require the lessee to measure the lease liability at the present value of lease payments discounted at the interest rate implicit in the lease (or, if that cannot be readily determined, the lessee's incremental borrowing rate). The right-of-use asset is measured as the amount of the lease liability plus any initial direct costs, lease payments made before the commencement date, and less any lease incentives received (paragraph 24).