How to use the lease liability and rou asset schedule calculator
- Enter the payment for each period, how many payments are made a year and the lease term in years.
- Choose whether payments are made at the start or the end of each period.
- Enter the discount rate you use. Open the advanced options to add initial direct costs, payments made before the start and incentives received.
- Read the lease liability, the right-of-use asset and the schedule by year, and download the CSV for every period.
Formula
i = annual discount rate / payments per year, n = number of payments
Liability = payment x (1 - (1 + i)^-n) / i, times (1 + i) if paid in advance
Interest in a period = balance x i, closing = opening - payment + interest
Right-of-use asset = liability + direct costs + prepayments - incentives
With a 0% rate the liability is the sum of the payments. The closing balance after the last payment is 0.
Five yearly payments of $10,000
Payments of $10,000 are made at the end of each of 5 years and the discount rate is 6%. The present value is $10,000 x (1 - 1.06^-5) / 0.06 = $42,123.64, which is the initial lease liability and, with no other costs, the right-of-use asset.
Interest in year 1 is $42,123.64 x 6% = $2,527.42, so the balance after the first payment is $34,651.06. Over the lease the interest adds up to $7,876.36, which is the $50,000 of payments less the $42,123.64 liability.
What the schedule shows
Under current lease accounting standards, a lessee records a liability for the present value of the payments it has committed to and an asset for the right to use the property. Each payment pays the interest first and reduces the liability with the rest, so interest is largest at the start and falls as the balance falls.
The right-of-use asset starts at the liability plus costs that were paid up front or at signing, less incentives from the lessor. The straight-line figure on the page spreads that over the term, which is how a finance lease amortizes the asset. How an operating lease presents its cost depends on the standard you follow.
Judgments that sit outside the arithmetic
The result depends on choices this page does not make for you: the discount rate, whether extension options are reasonably certain, whether variable payments are included and how the lease is classified. Small changes in the rate change the liability noticeably over a long term.
Use the schedule to check a figure from your accounting system, to draft a disclosure or to see how a change in the rate or term moves the balance. For reporting, confirm the treatment with your accountant.
Assumptions and limits
- The term is a whole number of payment periods and the payment is the same every period.
- The discount rate is a nominal annual rate compounded at the payment frequency.
- Escalating or variable payments are not modeled. Run separate leases or periods for them.
- The figures are examples. Nothing is uploaded.
Frequently asked questions
Which discount rate should I use?
Accounting standards describe the rate implicit in the lease or, if it cannot be found, the lessee's borrowing rate. Which one applies to you is a matter for your accountant.
What changes if payments are in advance?
The liability is higher by one period of interest, and the first payment reduces the balance before any interest is charged.
Does it handle lease incentives?
Yes. Incentives reduce the right-of-use asset but not the liability, which is based on the payments only.
Why does the closing balance reach exactly zero?
The liability is the present value of the payments at the same rate used for the interest, so after the last payment nothing is left.