The ROU Asset is the asset value recorded on an organization's books that represents the lease as an asset that provides a benefit (namely the right to use the leased building, land or equipment for a specific period).
The beginning balance of the ROU Asset is equal to the present value of all lease payments, plus the Initial Direct Costs. It does not include executory costs such as maintenance, taxes, insurance, utilities, repairs, and so on.
Credits, such as tenant improvement allowances defined in right-of-use options, are netted out against the costs in the fiscal period in which they occur. The present value of the net amount is used to calculate the ROU Asset and Initial Lease Liability.
For finance leases, the ROU Asset is amortized on a straight line basis over the course of the lease:
For operating leases, the ROU Asset amortization increases over the term of the lease to ensure that the lease expense remains constant for each period:
Under ASC 842, the “ROU Asset” is called the Leased Asset value.
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