Depreciation - Right-of-Use Assets
The monthly charge that spreads a Right-of-Use Asset's value over the lease term, on the Profit and Loss statement. Replaces rent expense on long leases.
In detail
A long lease recorded under NFRS 16 creates a Right-of-Use Asset, and like any asset it is depreciated over the lease term. The monthly charge debits this ledger and credits Accumulated Depreciation - Right-of-Use, while the interest on the lease liability is charged separately to Interest on Lease Liabilities. Together the two replace the rent that would otherwise have been expensed, usually front-loading the cost a little. The asset can be set up as an Asset record under a Right-of-Use category so the schedule posts itself, or the charge can be posted monthly by Journal Entry. Companies that keep rent in Office Rent under the short-term exemptions do not use this ledger. Tax law still allows the actual rent paid.
Formula
Monthly depreciation = Right-of-use asset cost / Lease term in months
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Depreciation - Right-of-Use Assets | Rs 22,500 | |
| Accumulated Depreciation - Right-of-Use | Rs 22,500 |
How to record it in BRAccount
- 01Create an Asset Category for right-of-use assets with this ledger as the depreciation account.
- 02Go to Assets > Asset > New, enter the lease asset value and the lease term as useful life, and submit.
- 03The Asset Depreciation Schedule posts the monthly Depreciation Entry; the entry below posts.
- 04Alternatively, post Invoicing > Journal Entry monthly with the same lines.
- 05Check the net book value against the remaining lease liability each Ashadh end.
When to use it
Posted by the depreciation Journal Entry from the lease asset's schedule, or by hand monthly.
Example from the demo books
Dr Depreciation - Right-of-Use Assets Rs 22,500, Cr Accumulated Depreciation - Right-of-Use Rs 22,500 for one month of the Thamel office lease.