How are ROU Assets Measured?
The initial measurement of an ROU asset is generally:
- Equal to the lease liability,
- Adjusted for items like prepaid lease payments, lease incentives received, and initial direct costs.
This ensures the asset value reflects the true economic cost of the lease.
Financial Statement Presentation
For lessees, ROU assets are presented on the statement of net position (for governmental entities following GASB) or the balance sheet (under FASB standards like ASC 842). They are typically listed as capital assets or noncurrent assets, depending on the organization’s chart of accounts and financial reporting policies.
The ROU asset is amortized over the lease term, with amortization expense recognized on the statement of activities(GASB) or income statement (FASB). This amortization is separate from the interest expense associated with the lease liability.
Disclosures and Transparency
In addition to balance sheet presentation, financial statements must include footnote disclosures describing:
- The nature of the leased assets
- The amortization period
- Any impairment losses
- Related lease obligations
These disclosures provide context for users of the financial statements and support transparency in lease accounting.
What's important here?
Right-to-use assets are presented as noncurrent assets on the balance sheet or statement of net position, reflecting a lessee’s control over leased property. They’re measured based on the lease liability, adjusted for upfront costs or incentives, and amortized over the lease term.
This presentation, alongside lease liabilities, ensures that lease obligations are visible and accurately represented in financial reporting under both GASB 87 and ASC 842.
