How to Record an Impairment of a Right-of-Use Asset When Leased Space Is No Longer Needed
Writing down an ROU asset when the leased premises are vacated while the lease obligation continues.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Impairment Loss (ROU Asset) | Expense (+) | 80,000.00 | - |
| Right-of-Use Asset | Asset (-) | - | 80,000.00 |
💡 Accountant's Note
If a leased premises is vacated but the lease obligation continues, the ROU asset must be tested for impairment and written down to its recoverable amount.
Practitioner & Systems Framework
💻 ERP Architecture
When a leased space is vacated early (and subleasing or early termination is not possible), the ROU asset may be impaired because the company can no longer generate economic benefits from it. Test the ROU asset for impairment under IAS 36: recoverable amount = higher of (a) the sublease rental income PV if sublet, or (b) nil if not sublet-able. The lease liability continues unchanged — the company still owes the lease payments regardless. This creates an asset (impaired ROU) and liability (unchanged lease liability) mismatch that is disclosed.
⚠️ Audit Flags
Auditors identify ROU asset impairment indicators: restructurings leading to space vacations, remote or unused branch offices, store closures (retail). An ROU asset that has been impaired to zero but a continuing lease liability creates an unusual balance sheet presentation that will be scrutinized. The possibility of subletting the space (and any sublease income) is a key factor in the recoverable amount — failing to consider subletting potential understates the recoverable amount.
📄 Required Documentation
Evidence of vacancy (vacation date, handover to sublessor or abandonment), IAS 36 impairment assessment (VIU with subletting income or nil), impairment loss calculation, subletting market analysis, lease liability schedule (unchanged), IAS 36 disclosure, and provision for onerous lease contracts (if applicable under IAS 37 for remaining obligations).
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