How to record Lease
A lease under IFRS 16 is a contract that grants the right to use an asset for a specified period in exchange for consideration. It must provide:
- Control over the asset's economic benefits.
- The right to dictate the asset's use.
Under IFRS 16, lessees no longer differentiate between operating and finance leases. Instead, all leases are treated as finance leases. This means:
- Capitalization: Leases are recorded on the balance sheet as a Right of Use (ROU) asset and a corresponding lease liability.
- Expense Recognition: Both depreciation of the ROU asset and interest on the lease liability are recognized on the income statement.
Step 1- Create General Ledger (GL) accounts
Right of Use (ROU) asset under Non-current assets
Step 2: Create an Inventory Item
Set up an inventory item and select the "Right to Use" GL account from the option to edit GL accounts.
Step 3- Create invoice received document
Step 4 Create the manual depreciation for the asset using the Other expense document from Accounting (Every Month manually):
