5. How is a lease liability to be measured at lease inception?

Paragraph 26 of AASB 16 requires that:

At the commencement date, a lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date. The lease payments shall be discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee shall use the lessees incremental borrowing rate. (AASB 16)

The above requirement refers to lease payments. In this regard, paragraph 27 states:

At the commencement date, the lease payments included in the measurement of the lease liability comprise the following payments for the right to use the underlying asset during the lease term that are not paid at the commencement date:

1. fixed payments, less any lease incentives receivable;

2. variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

3. amounts expected to be payable by the lessee under residual value guarantees;

4. the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and

5. payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease. (AASB 16)