Question
A firm enters into a 3-year lease for equipment: present value of lease payments at commencement = ₹9,00,000. Useful life of equipment = 5 years. Lessee recognises ROU asset of ₹9,00,000 and lease liability ₹9,00,000. If straight-line depreciation is used over lease term (3 years), annual depreciation = ?
Solution
The Right-of-Use (ROU) asset is typically depreciated over the shorter of the lease term or the useful life of the underlying asset. Here, the lease term (3 years) is shorter. Annual Depreciation = ROU Asset / Lease Term = 9,00,000 / 3 = ₹3,00,000.
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