How to Calculate the Lease Liability | Lessee | IFRS 16 [Video]

The lease liability is calculated as the present value of the lease
payments. Three things are required to calculate the present value of the lease payments:

1. The amount of each lease payment
2. The lease term
3. The discount rate

Lease payments include:
(a) fixed or variable payments
(b) amounts payable under a residual value guarantee
(c) the bargain purchase price

When it comes to the discount rate, the lessee should use the lessor’s implicit interest rate. If the lessee doesn’t know the lessor’s implicit interest rate, the lessee should use the lessee’s incremental borrowing rate as the discount rate.
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