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What is the conceptual basis for asset and liability recognition under the right-of-use approach used by...

What is the conceptual basis for asset and liability recognition under the right-of-use approach used by the lessee in a lease transaction?

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Expert Solution

The conceptual basis for asset and liaility recognition under right of use approach used by lessee in lease transaction.
The asset will be measured at an amount of lease liability plus any direct cost incurred initially.
However, Once the lease begins, the lessee should use the cost model which can be arrived as follows
Cost of asset    XXX
Less : Depreication    XXX
Less : Impairment losses    XXX
Recognition of asset value    XXX
The liability will be recognised at present worth of lease payment to be made over a period of lease term.
Here, the discounted rate implicited in the lease should be used to arrive at present worth or value

The above accounting treatment is as per IFRS 16 : Leases.

This IFRS is to be made effective from the period on or after January 1, 2019


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