At the commencement of a lease, IFRS and US GAAP (for both finance and operating leases) require the lessee to recognize a Lease Liability (for the present value of future lease payments) and a right-of-use (ROU) asset of equal amount (adjusted for any prepaid rent, initial direct costs, or lease incentives). UK GAAP follows the same approach. Click Next below to see an example.

2. Initial Recognition