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How come the $5,000 payment made at the start of Plum’s lease wasn’t added to the ROU Asset but Peach’s payment of $4,000 was? My best guess is that Peach’s $4,000 wasn’t specified as a lease payment, just an initial payment – but hoping for clarification.
Hi,
The value of the ROU asset is the present value of the least payments payable over the lease term. This will therefore require us to consider the initial payment and the future payments under the lease.
In Peach we are given the present value of the future lease payments, which includes the future lease payments but not the initial lease payment. To get the value of the ROU asset we will need to add on the initial lease payment to this figure.
In Plum we are given the present value of the minimum lease payments, which will include the initial and future lease payments in the calculation. We do not need to add on the initial payment to get the value of the ROU asset as it has already been included as part of the minimum lease payments.
Thanks
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