What is a Right-of-Use Asset in Real Estate?

What is a Right-of-Use Asset in Real Estate?

A right-of-use asset in real estate is an accounting concept introduced under the IFRS 16 and ASC 842 standards, which refers to the asset that a lessee records on the balance sheet to represent its right to use a leased property for the lease term. This asset is recognized at the commencement of the lease and includes the initial amount of the lease liability, any initial direct costs incurred by the lessee, and lease payments made at or before the lease commencement date, minus any lease incentives received. The right-of-use asset is amortized over the lease term, and its value may be adjusted for impairment losses or remeasurement of the lease liability.

This approach aims to provide a more accurate representation of the lessee’s financial position by reflecting both the benefits and obligations arising from leasing contracts.