Depreciation and finance

AASB 16 lease depreciation, explained and calculated

In short

Under AASB 16, a lease is recognised as a right-of-use asset that depreciates over the lease term while the lease liability unwinds into an interest and principal split each period. Cohiva Control computes both sides natively with fixed-precision decimal arithmetic rounded half up, keeps an append-only ledger, and posts the monthly journal to Xero, QuickBooks, NetSuite or Crunch.

Worked example: AASB 16 / IFRS 16 Lease monthly schedule
Monthly payment: $2,000.00Lease term: 36 months (3 years)Discount rate: 5% annualOpening right-of-use asset: $66,000.00
Month Opening ROU ROU depreciation Closing ROU
1 $66000.00 $1833.33 $64166.67
2 $64166.67 $1782.41 $62384.26
3 $62384.26 $1732.90 $60651.36
4 $60651.36 $1684.76 $58966.60
5 $58966.60 $1637.96 $57328.64
6 $57328.64 $1592.46 $55736.18
7 $55736.18 $1548.23 $54187.95
8 $54187.95 $1505.22 $52682.73
9 $52682.73 $1463.41 $51219.32
10 $51219.32 $1422.76 $49796.56
11 $49796.56 $1383.24 $48413.33
12 $48413.33 $1344.81 $47068.51

Figures are computed by the same depreciation engine Cohiva Control uses in the product (money as NUMERIC(19,4), rounded ROUND_HALF_UP), shown for the first 12 months of an illustrative asset.

AASB 16 lease depreciation, explained and calculated

AASB 16, the Australian standard aligned with IFRS 16, changed how lessees account for leases by bringing most of them onto the balance sheet. Instead of treating a lease as a simple rental expense, you recognise a right-of-use asset and a lease liability, then depreciate the asset and unwind the liability into interest and principal over the lease term. This page explains both halves, walks through a worked example, and shows how Cohiva Control computes them together.

How AASB 16 works

There are two moving parts each period.

The right-of-use asset depreciates over the lease term:

  • Right-of-use depreciation equals the opening right-of-use balance divided by the lease term in months.

The lease liability unwinds as you make payments:

  • Interest equals the opening liability times the annual discount rate divided by 12.
  • Principal equals the payment minus the interest, and the liability reduces by the principal.

So a single monthly payment is split: part of it is interest on the outstanding liability, and the rest pays down the principal. Separately, the right-of-use asset depreciates on its own schedule.

A worked example

The calculator above uses a monthly payment of 2,000 over a 36-month, three-year lease at a 5 per cent annual discount rate, with an opening right-of-use asset of 66,000. Right-of-use depreciation is 66,000 divided by 36, which is 1,833.33 a month, the charge shown for the first period. On the liability side, the first month’s interest is the opening liability times 5 per cent divided by 12, with the remainder of the 2,000 payment reducing the principal. As the liability falls, the interest portion shrinks and the principal portion grows each month. The figures come from the product’s depreciation engine, so they match what Cohiva Control posts.

When to use it

Use AASB 16 for leased assets that belong on the balance sheet as a right-of-use asset, such as leased plant, vehicles and premises. It is the standard treatment for AU and NZ entities reporting under AASB 16 or IFRS 16. The other five methods on this hub cover owned assets; AASB 16 is the one for leases.

How Cohiva Control computes it

Cohiva Control runs both the right-of-use depreciation and the liability unwind through the same engine the product uses internally, keeping the interest and principal split correct period by period. Money is a fixed-precision decimal rounded half up, never a floating point number, so the schedule stays accurate as the liability reduces.

Each monthly run writes to an append-only ledger and can post a journal to Xero, QuickBooks, NetSuite or Cohiva Crunch. The run is idempotent, posting state is tracked separately from the immutable ledger row, and the lease is recorded against the same asset your team operates.

Part of the Cohiva platform

Cohiva Control is part of the Cohiva platform. Leisure operators often run it with Cohiva Complex, and finance teams connect it to Cohiva Crunch for the general ledger. Explore the platform at www.cohiva.app.

This page provides general information about how Cohiva Control calculates depreciation. It is not accounting, tax or financial advice. Confirm treatment with your accountant or adviser.

Frequently asked questions

What does AASB 16 change?
AASB 16, aligned with IFRS 16, brings most leases onto the balance sheet. Instead of a simple rental expense, the lessee recognises a right-of-use asset and a lease liability, then depreciates the asset and splits each payment into interest and principal.
How is the right-of-use depreciation calculated?
Right-of-use depreciation is the opening right-of-use balance divided by the lease term in months, charged each period over the term.
How is the lease liability handled?
Interest equals the opening liability times the annual discount rate divided by 12. Principal is the payment minus interest, and the liability reduces by the principal each period.
When should I use it?
Use AASB 16 for leased assets that sit on the balance sheet as a right-of-use asset, such as leased plant, vehicles and premises.
Where do the journals go?
Each monthly run writes to an append-only ledger and can post a journal to Xero, QuickBooks, NetSuite or Cohiva Crunch, idempotently.