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My Dear Tutor, it says the right of use asset is initially measured at the amount of lease liability and any initial direct cost incurred by the lessee.
Say for example lease asset is measured at 5000 and its initial direct cos it 400 so it will be debit asset 5400 credit lease liability 5400
And also it says adjustments may also be required for lease incentives,payments at or prior to commencement and restoration obligations or similar.-this part remind me leased asset costing say for example 5000 and initial deposit pay say for example 2000 or finance lease in advance pay
did i understand in both case correctly?
My Dear Tutor, my Dear Tutor, as we know that there some criterion which show the proof of finance leased asset such as
risks and rewards transferred
present value of minimum lease payments should be equal to FV of asset
lease term covers substantially useful life of asset
it contains purchase option at the end of termif we have the right of use including one of these criterion we recognize it as finance lease by debit Finance leased asset credit Finance lease liability but if it has simply has the right of use but not meeting one these criterion(according to prior standard as operating lease) we also recognize debit asset credit liability
There can be a case asset is not meeting the following criterion but is operating lease in both cases we recognise debit asset credit liability?
did i get it correct?“Say for example lease asset is measured at 5000 and its initial direct cos it 400 so it will be debit asset 5400 credit lease liability 5400”
I seem to think that you have $400 too much in the liability account and no entry to record the payment of $400 direct costs
What about:
Dr Asset account $5,400
Cr Cash $400
Cr Liability $5,000I don’t understand the treatment that you are proposing in your first post – sorry
Re your second post, “Did I get it right?”, No
If we have right of use but it’s not for substantially the whole of the asset’s life (for example) then it’s not a finance lease and therefore we cannot debit asset and credit liability
The entry would simply be a recording of the lease payments as ‘asset rental’ or ‘equipment hire’
OK?
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