Right-of-Use Asset
An asset representing a lessee's right to use leased property over the lease term, recognized on the balance sheet under ASC 842 and IFRS 16.
What is ROU Asset?
A right-of-use (ROU) asset is recognized on a lessee's balance sheet to represent its right to use an underlying leased asset—such as real estate, vehicles, or equipment—over the lease term. Introduced by FASB's ASC 842 (effective for public companies in 2019) and IFRS 16, the ROU asset is initially measured at the present value of future lease payments, adjusted for lease incentives received, initial direct costs, and prepaid or accrued lease payments. It is matched by an equal lease liability representing the same obligation. Over the lease term, the ROU asset is amortized (for finance leases) or reduced systematically (for operating leases) as periodic lease costs are recognized. The recognition of ROU assets significantly increased reported total assets for companies with large off-balance-sheet operating leases—particularly retailers, airlines, and restaurant chains—improving comparability across lessees and lessors.
Example
When ASC 842 took effect, retailer Target recognized approximately $10 billion in new ROU assets tied to its store leases—leases that had previously been off-balance-sheet. This effectively doubled its reported total assets while also adding a corresponding $10 billion lease liability, materially changing leverage ratios used by creditors.
Source: FASB ASC 842 — Leases