Right-of-Use Assets & Lease Liabilities: PSAK 73 Journal Entries Explained
Understanding right-of-use asset and lease liability calculations
Under PSAK 73 (IFRS 16), lessees must recognize a right-of-use (ROU) asset and a corresponding lease liability for virtually all leases. This represents a significant change from the previous operating lease treatment and requires new accounting calculations, journal entries, and disclosures.
Initial Recognition of ROU Asset and Lease Liability
At lease commencement, the lease liability is measured at the present value of future lease payments, discounted at the incremental borrowing rate. The ROU asset equals the lease liability plus any initial direct costs, prepaid lease payments, and estimated restoration costs, less any lease incentives received.
Subsequent Measurement and Journal Entries
After initial recognition, the lease liability is measured using the effective interest method — each period records interest expense and reduces the liability by the payment amount. The ROU asset is depreciated over the lease term (or useful life if shorter). Key journal entries include: depreciation of ROU asset, interest on lease liability, and lease payment allocation.
Lease Modifications and Reassessments
When lease terms change (extensions, terminations, rent reviews), both the ROU asset and lease liability must be remeasured. This requires recalculating present values with updated assumptions and recording adjustment entries. Frequent modifications create significant accounting complexity.
How Software Automates ROU and Liability Calculations
Lease accounting platforms automatically calculate initial and subsequent measurements for all lease contracts, generate journal entries for each accounting period, handle lease modifications with automatic remeasurement, and produce PSAK 73 disclosure schedules. Automation eliminates manual spreadsheet calculations that are prone to errors. BIS73 is one platform designed specifically for this purpose in the Indonesian market.
Disclosure Requirements
PSAK 73 requires extensive disclosures including: ROU asset balances by asset class, depreciation charges, interest expense on lease liabilities, lease liability maturity analysis, and qualitative information about leasing activities. A good lease accounting platform generates all required disclosure schedules automatically.