The right-of-use asset is a lessee's right to use an asset over the life of a lease (see Lease) recognized on the balance sheet. The right-of-use asset is calculated as the initial amount of the lease liability (see Liability), plus any lease payments made to the lessor before the start date of the lease, plus any initial direct costs incurred, plus the present value of the restoration costs minus any lease incentives received.

Under IFRS 16, the depreciation calculation must take into account the shortest period of either the economic life of the asset or the lease period if there is no purchase option (see Purchase option) or transfer of ownership. If the economic life of the asset is shorter than the lease period, the depreciation is calculated based on the economic life.

If a right-of-use asset is determined to be impaired, the impairment is immediately recorded, thereby reducing the carrying amount of the asset (see Impairment). Its subsequent measurement is calculated as the carrying amount immediately after the impairment transaction, minus any subsequent accumulated depreciation.

At the termination of a lease, the right-of-use asset and associated lease liability are removed from the books of the lessee. The difference between the two amounts is accounted for as a profit or loss at that time.