Yup, you guessed what it is: discount rate.
At this stage, it has become clear that determining the discount
rate to measure the net investment in the lease will be no easy
feat. But before you throw your hands up in exasperation, let's
explore how you can navigate this challenging route.
The implicit interest rate
Although the implicit interest rate is not in itself a new
concept, it still presents a challenge—namely, how to apply
it in the new world of lease accounting. As a reminder, the
standard defines the interest rate implicit in the lease as the
discount rate at which the sum of the present value of (i) the
lease payments and (ii) the unguaranteed residual value equals the
sum of (iii) the fair value of the underlying asset and (iv) any
initial direct costs (of the lessor).
