Right-of-Use Asset - Property

Right-of-Use Asset - Property records the value of an office, shop or godown held under a lease of more than one year, measured at the present value of the future rents on the day the lease starts. A three-year Thamel office at Rs 25,000 a month, discounted at the company's borrowing rate, comes to about Rs 8,10,000. The asset is depreciated straight line over the lease term, so each month charges Depreciation - Right-of-Use Assets and credits Accumulated Depreciation - Right-of-Use, while the rent payments reduce the Lease Liability and carry interest. The Balance Sheet then shows what the lease commits the company to, which a bank wants to see. Leases of twelve months or less are simply Office Rent.

Initial value = Present value of lease payments; Monthly depreciation = Initial value / Lease term in months.

1. 01Get the lease schedule from the auditor: present value, term in months and the interest rate.
2. 02Go to Invoicing > Journal Entry > New dated the lease start; debit this account, credit Lease Liabilities - Non-Current.
3. 03Submit. The entry above posts for the three-year Thamel office.
4. 04Create an Asset under Assets > Asset with category Right-of-Use Assets so a depreciation schedule runs over 36 months.
5. 05Each month the Depreciation Entry posts Rs 22,500 and the rent Payment Entry reduces the Lease Liability.

Post by Journal Entry when a long lease begins, at the present value of future rents. Short leases under twelve months stay as Office Rent.

Dr Right-of-Use Asset - Property Rs 8,10,000, Cr Lease Liabilities - Non-Current Rs 8,10,000 for a three-year Thamel office lease at Rs 25,000 a month.