Since PSAK 73 took effect on 1 January 2020, almost every lease a company enters into as a lessee has had to appear on the statement of financial position. From 1 January 2024 the standard has been numbered PSAK 116 Leases, and in August 2025 the Financial Accounting Standards Board of the Institute of Indonesia Chartered Accountants (DSAK IAI) opened a post-implementation review of how it is applied. At the centre of it all is one frequently misunderstood account: the right-of-use asset.
This article explains what a right-of-use asset is, how it is measured at and after the commencement date, the exemptions available, and the tax consequences.
What Is a Right-of-Use Asset?
A right-of-use asset represents a lessee's right to use an underlying asset—such as an office building, warehouse, vehicle, or machine—for the lease term. It arises together with a lease liability, the obligation to make future lease payments.
Before recognising it, a company must confirm that the contract actually contains a lease. Under PSAK 116, a contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The two key questions are:
- Does the customer have the right to obtain substantially all of the economic benefits from use of the asset?
- Does the customer have the right to direct how and for what purpose the asset is used?
Service contracts that do not give control of a specific asset—for example, where the supplier can freely substitute the asset used—are generally not leases.
Initial Measurement
At the commencement date, when the asset is available for use, the right-of-use asset is measured at cost, comprising:
- the initial measurement of the lease liability, being the present value of unpaid lease payments discounted at the interest rate implicit in the lease or, if that cannot be readily determined, the lessee's incremental borrowing rate;
- lease payments made at or before the commencement date, less lease incentives received;
- initial direct costs incurred by the lessee; and
- an estimate of costs to dismantle, remove, or restore the asset as required by the lease terms.
A simple illustration. A company leases an office building for 5 years at Rp100 million per year, paid at the end of each year. The incremental borrowing rate is 10% and initial direct costs are Rp5 million. The present value of five payments of Rp100 million is about Rp379.08 million, so the initial lease liability is Rp379.08 million and the right-of-use asset is Rp384.08 million. With straight-line depreciation over 5 years, depreciation is about Rp76.82 million per year, while first-year interest is about Rp37.91 million. Total first-year expense is about Rp114.7 million—more than the Rp100 million cash rent—and then declines as interest falls. Over the 5 years, total expense equals total cash paid (Rp505 million). The illustration ignores tax.
Recognition Entries and First-Year Bookkeeping
Based on the illustration above (in millions of rupiah), the lessee records the following journal entries.
| Account | Debit | Credit |
|---|---|---|
| Right-of-use asset – office building | 384.08 | |
| Lease liability | 379.08 | |
| Cash (initial direct costs) | 5.00 |
| Account | Debit | Credit |
|---|---|---|
| Interest expense – lease liability | 37.91 | |
| Lease liability | 37.91 |
| Account | Debit | Credit |
|---|---|---|
| Lease liability | 100.00 | |
| Cash | 100.00 |
| Account | Debit | Credit |
|---|---|---|
| Depreciation expense – right-of-use asset | 76.82 | |
| Accumulated depreciation – right-of-use asset | 76.82 |
After these entries, the lease liability at the end of year 1 is Rp316.99 million (Rp379.08 + Rp37.91 − Rp100.00) and the carrying amount of the right-of-use asset is Rp307.26 million (Rp384.08 − Rp76.82). The same pattern repeats in later years with declining interest: Rp31.70 million in year 2, Rp24.87 million in year 3, Rp17.36 million in year 4, and Rp9.09 million in year 5, so the lease liability reaches zero at the end of the lease.
In practice, rental of land and/or buildings is usually subject to Article 4(2) income tax withheld by a lessee appointed as withholding agent. The withholding splits the payment between cash paid to the building owner and an Article 4(2) tax payable, without changing the amount that reduces the lease liability.
Measurement After the Commencement Date
Lessees generally apply the cost model: the right-of-use asset is measured at cost less accumulated depreciation and accumulated impairment losses (PSAK 236), adjusted for any remeasurement of the lease liability, for example because of a change in the lease term or in index-linked payments.
- Depreciation period. If ownership transfers to the lessee by the end of the lease or a purchase option is reasonably certain to be exercised, the asset is depreciated over the useful life of the underlying asset. Otherwise, it is depreciated to the earlier of the end of its useful life or the end of the lease term.
- Investment property. If the lessee applies the fair value model to investment property (PSAK 240), right-of-use assets that meet the definition of investment property are also measured at fair value.
- Revaluation model. If right-of-use assets relate to a class of property, plant and equipment revalued under PSAK 216, the lessee may elect to apply the revaluation model to those right-of-use assets.
Exemptions: Short-Term Leases and Low-Value Assets
PSAK 116 allows a lessee not to recognise a right-of-use asset and lease liability for:
- short-term leases, with a term of 12 months or less at the commencement date and no purchase option. This election is made by class of underlying asset; and
- leases of low-value assets, assessed on the value of the asset when new, regardless of the size of the company. This election can be made lease by lease.
For exempted leases, payments are recognised as an expense, usually on a straight-line basis over the lease term. The policy should be documented and applied consistently.
Presentation and Disclosure
Right-of-use assets are presented separately from other assets in the statement of financial position, or the line items that include them are disclosed. In profit or loss, interest on the lease liability is presented separately from depreciation of the right-of-use asset. In the statement of cash flows, principal repayments are financing activities, interest follows the entity's policy, and payments for short-term leases, low-value assets, and variable payments not included in the lease liability are operating activities.
Tax Implications
At the time of writing, there is no tax regulation that specifically addresses PSAK 116. Tax treatment of finance leasing still refers to Minister of Finance Decree (KMK) Number 1169/KMK.01/1991, which classifies leases using formal criteria rather than accounting substance. In practice, therefore:
- depreciation of right-of-use assets and interest on lease liabilities are generally added back for tax purposes, while lease payments that meet tax rules are deducted from gross income;
- income tax withholding still follows the nature of the transaction, for example the 10% final tax under Article 4(2) on rental of land and/or buildings (Government Regulation 34 of 2017) and Article 23 withholding on rental of other assets;
- for financial reporting, the amendment to PSAK 46, now PSAK 212, requires recognition of deferred tax assets and liabilities on temporary differences from right-of-use assets and lease liabilities, because the initial recognition exemption no longer applies to single transactions that give rise to equal taxable and deductible temporary differences.
These differences should be mapped contract by contract so that the fiscal reconciliation in the annual tax return and the deferred tax calculation remain consistent.
What About Entities Using SAK for Private Entities?
PSAK 116 applies to entities that apply Indonesian SAK. SAK for Private Entities (SAK EP), effective from 1 January 2025 and developed by adopting the 2015 IFRS for SMEs, has its own leases chapter that still distinguishes finance leases from operating leases. Entities using SAK EP should follow SAK EP rather than PSAK 116.
Areas That Most Often Require Judgement
The discussion paper for the post-implementation review of PSAK 116, issued by DSAK IAI in August 2025, highlights several areas that most often require judgement:
- Determining the lease term, particularly whether extension or termination options are "reasonably certain" to be exercised.
- Determining a reasonable and documented incremental borrowing rate.
- Separating variable payments that depend on an index or rate from those that depend on usage.
- Remeasuring the lease liability on contract modifications or index changes.
- Presenting lease cash flows consistently.
Practical Steps for Companies
- Build a lease contract register: asset, term, options, payments, escalations, and incentives.
- Set a written policy on the short-term and low-value exemptions.
- Document the basis for the discount rate for each group of leases.
- Prepare lease liability amortisation and right-of-use depreciation schedules that reconcile to the general ledger.
- Map the tax treatment of each contract and calculate the related deferred tax.
- Review every contract modification before closing the books.
Conclusion
The right-of-use asset changes how leases appear in financial statements: rent expense that used to be level becomes depreciation and interest that are higher early in the lease, while assets and liabilities increase. The quality of the figures depends heavily on contract data, judgements about the lease term, and the discount rate. Because tax treatment still differs, companies also need to manage fiscal corrections and deferred tax carefully.
Need support implementing PSAK 116 or reviewing lease calculations? See the Accounting & SAK Implementation service, read Implementing the Latest SAK for Business, or try the PSAK 212 Deferred Tax Calculation tool.
Official References
- IAI: Renumbering of PSAK and ISAK in Indonesian SAK
- DSAK IAI: Discussion Paper, Post-Implementation Review of PSAK 116 (August 2025)
- PSAK 116 Leases, PSAK 212 Income Taxes, PSAK 216 Property, Plant and Equipment, PSAK 236 Impairment of Assets, PSAK 240 Investment Property.
- KMK Number 1169/KMK.01/1991 on Leasing Activities; Government Regulation Number 34 of 2017.
This article is general information and is not accounting, audit, or tax advice for any particular situation. Application to each entity must consider the contract facts, accounting policies, and applicable regulations. The Indonesian version is the original text.