IFRS 16 Lease Calculator
Work out the lease liability and right-of-use asset for a lease under IFRS 16, and see the first-year charge to profit or loss. Free, instant and based on the standard's lessee model.
Method IFRS 16 lessee model: present value of lease payments
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How the IFRS 16 lease calculation works
Under IFRS 16 Leases, a lessee brings most leases onto the balance sheet. The calculator follows the standard's lessee model in three steps:
- Measure the lease liability. Discount each lease payment back to the commencement date at the discount rate. The total of these present values is the lease liability.
- Measure the right-of-use asset. Start from the lease liability, add initial direct costs and the present value of restoration costs, and deduct any lease incentives received.
- Account for the lease over its term. Charge interest on the liability each period (the effective interest method) and depreciate the right-of-use asset on a straight-line basis over the lease term.
Worked example
A company leases office space for 5 years from 1 January 2026. It pays US$12,000 at the end of each year, its incremental borrowing rate is 10%, and it paid US$1,000 in legal fees to arrange the lease.
| Item | US$ |
|---|---|
| Present value of 5 × 12,000 at 10% (lease liability) | 45,489.44 |
| Add: initial direct costs | 1,000.00 |
| Right-of-use asset | 46,489.44 |
| Year 1 depreciation (46,489.44 ÷ 5) | 9,297.89 |
| Year 1 interest (45,489.44 × 10%) | 4,548.94 |
| Year 1 charge to profit or loss | 13,846.83 |
The Year 1 charge of 13,846.83 is higher than the 12,000 rent paid. By Year 5 the charge falls to 10,388.80, because the interest shrinks as the liability is paid down.
Frequently asked questions
What does IFRS 16 require a lessee to recognise?
For most leases, the lessee recognises a lease liability (the present value of the lease payments it has committed to) and a right-of-use asset (its right to use the leased item). Rent is no longer simply expensed: the cost appears as depreciation of the asset and interest on the liability.
Which discount rate should I use?
Use the interest rate implicit in the lease if you can determine it. Most lessees cannot, so they use their incremental borrowing rate: the rate they would pay to borrow a similar amount, over a similar term and with similar security, to obtain a similar asset. The rate is a key judgement, so document how you arrived at it.
When can I leave a lease off the balance sheet?
IFRS 16 offers two optional exemptions: short-term leases of 12 months or less (with no purchase option), and leases of low-value assets such as laptops or phones. For these, you may expense the payments on a straight-line basis. The calculator checks both.
Why is the expense higher in the early years?
Depreciation is straight-line, but interest is charged on the outstanding liability, which is largest at the start. So the total charge is higher in the early years and lower in the later years than the cash rent, even though the total over the lease is the same apart from any initial direct costs, incentives or restoration costs.
What is the difference between payments in advance and in arrears?
Payments in advance are made at the start of each period, so the first payment is made on the commencement date. Payments in arrears are made at the end of each period. Paying in advance gives a higher liability at commencement because each payment is discounted for one period less.
What does the professional report include?
Full year-by-year schedules for the liability and the right-of-use asset, journal entries, the current and non-current split at each year-end, the maturity analysis for your disclosures, and sensitivity to the discount rate and lease term. It is designed as a working paper you can hand to your auditor.
Is this calculator suitable for every lease?
This version covers lessee accounting for one lease with fixed payments (with an optional fixed annual increase). It does not cover payments linked to an index, lease modifications, purchase options, sale and leaseback, or lessor accounting. The results depend on the figures and judgements you enter.
Results are based on the figures and judgements you enter, such as the lease term and discount rate. They are not an audit opinion or accounting advice. For help applying IFRS 16 to your leases, talk to our team.