When the lessee capitalizes a lease, it doesn’t just record a liability; it also records a right-of-use asset. At the commencement of the lease, the right-of-use asset is calculated as follows:
Initial measurement of lease liability + lease prepayments + initial direct costs + costs to dismantle/remove the asset or restore the site - lease incentives received from the lessor = right-of-use asset
The right-of-use asset is then recorded on the lessee's statement of financial position and depreciated over the lease term.
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