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Accounting for leases: A worked example

In response to feedback from readers to last week's article on accounting for leases, here is a worked example which clearly shows how the new standard works in practice
Accounting for leases: A worked example

Following some useful feedback from readers on last week’s article about accounting for leases, I will show a practical example as to how the assets, liabilities and income statement expenses associated with them are calculated.

A company signs an agreement with a landlord to rent a property for 10 years at an annual rent of £1m a year. The interest rate in the lease is 6 per cent and there are no break clauses in the agreement.

The initial right-of-use asset and lease liability that will go on the balance sheet are calculated by discounting the future annual rent payments to a present value using a discount rate of 6 per cent.

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