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Initial Recognition and Measurement

Under PFRS 16:22, upon lease commencement, a lessee recognizes both a Right-of-Use (ROU) Asset and a Lease Liability.

Initial Measurement [PFRS 16:24]

The ROU asset is initially measured at cost, which comprises:

  1. Initial Amount of the Lease Liability

  2. Initial Direct Costs incurred by the lessee

  3. Adjustments for:

    • Lease payments made at or prior to commencement date

    • Less any lease incentives received

    • Estimated costs of dismantling, removing the underlying asset, or restoring the site (restoration obligations)

Subsequent Measurement

After lease commencement, a lessee shall measure the ROU asset using the Cost Model, unless specific exceptions apply [PFRS 16:29, 34, 35].

Exceptions to the Cost Model

  1. Investment Property (PAS 40): The ROU asset meets the definition of investment property and the lessee applies the f air value model under PAS 40.

  2. Revaluation Model (PAS 16): The ROU asset relates to a class of Property, Plant, and Equipment (PPE) to which the lessee applies the revaluation model under PAS 16 (all ROU assets in that class may be revalued).

Cost Model Application [PFRS 16:30(a)]

Under the cost model, the ROU asset is measured at:

  • Cost less Accumulated Depreciation and Accumulated Impairment.

Depreciation Period

  1. Useful Life of the Underlying Asset: Applied if:

    • Ownership transfers to the lessee by the end of the lease term, or

    • It is reasonably certain that the lessee will exercise an option to purchase the asset.

  2. Shorter of Lease Term or Useful Life: Applied in all other cases.