# Lease Liability and ROU Asset Calculation (AASB 16)

## Working

**Step 1 – Discount factor (annuity, 5 years @ 7%)**

PV annuity factor = [1 − (1.07)⁻⁵] / 0.07

- (1.07)¹ = 1.07
- (1.07)² = 1.1449
- (1.07)³ = 1.225043
- (1.07)⁴ = 1.31079601
- (1.07)⁵ = 1.4025517307

(1.07)⁻⁵ = 1 / 1.4025517307 = 0.71298618

PV annuity factor = (1 − 0.71298618) / 0.07 = 0.28701382 / 0.07 = 4.10019744

**Step 2 – Present value of each payment**

| Year (t) | Cash flow | Discount factor (1.07)⁻ᵗ | Present value |
|---|---|---|---|
| 1 | 25,000 | 0.934579 | 23,364.49 |
| 2 | 25,000 | 0.873439 | 21,835.97 |
| 3 | 25,000 | 0.816298 | 20,407.45 |
| 4 | 25,000 | 0.762895 | 19,072.38 |
| 5 | 25,000 | 0.712986 | 17,824.65 |

Sum ≈ 25,000 × 4.10019744 = **$102,504.94**

## Results

**(a) Initial Lease Liability**
$102,504.94

**(b) Initial Right-of-Use (ROU) Asset**
$102,504.94 (equal to the initial lease liability, since there are no initial direct costs, lease incentives, prepaid lease payments, or restoration costs)

## Governing Standard

**AASB 16 *Leases*** — specifically the initial measurement requirements for lease liabilities (present value of unpaid lease payments discounted at the rate implicit in the lease, or the lessee's incremental borrowing rate if the implicit rate cannot be readily determined) and the right-of-use asset (initially measured at the amount of the lease liability, adjusted for items such as initial direct costs, prepayments, incentives, and restoration costs — none of which apply here).