(a) Initial lease liability

The present value of an ordinary annuity of $25,000 per year for 5 years at 7%:

PV = $25,000 × [1 − (1.07)^(−5)] / 0.07

PV = $25,000 × [1 − 0.712986] / 0.07

PV = $25,000 × 0.287014 / 0.07

PV = $25,000 × 4.100197

PV = **$102,504.93**

Working: $25,000/1.07 + $25,000/1.07² + $25,000/1.07³ + $25,000/1.07⁴ + $25,000/1.07⁵
= $23,364.49 + $21,835.97 + $20,407.45 + $19,072.38 + $17,824.65
= $102,504.94 (rounding differences)

Using exact formula: **$102,504.93**

(b) Initial right-of-use asset

Since there are no initial direct costs, lease incentives, prepaid lease payments, or restoration costs:

ROU asset = Initial lease liability = **$102,504.93**

**Accounting standard:** AASB 16 *Leases*