Initial Measurement of Lease Liability

Present Value of Lease Payments

At lease commencement, the lessee measures the lease liability as the present value of future lease payments not yet paid. The discount rate is generally the interest rate implicit in the lease, if known, or the lessee's incremental borrowing rate.

Lease Liability = Present Value of Future Lease Payments

• Include fixed lease payments.
• Include certain variable payments based on an index or rate.
• Include reasonably certain purchase option payments.
• Exclude most executory costs unless required.