Initial direct costs
Incremental costs incurred to obtain a lease that would not have been incurred if the lease had not been obtained.
Definition
Initial direct costs are costs directly attributable to negotiating and arranging a lease — such as legal fees, broker commissions, and other transaction costs. They are included in the initial measurement of the right-of-use asset and amortised over the lease term.
Why it matters
Initial direct costs increase the ROU asset cost and the amortisation charge. Internal costs and general overhead cannot be capitalised — only incremental external costs qualify.
In AuditLease
AuditLease captures initial direct costs as an optional input to the initial measurement calculation.
Related terms
Put this into practice with AuditLease
AuditLease handles IFRS 16 and FRS 102 lease calculations, statutory note generation, journal entries, and audit evidence — so your team spends less time on spreadsheets and more time on judgements.
This definition is for general information only and is not accounting or legal advice. Definitions are based on IFRS 16, FRS 102, and associated guidance published by the IFRS Foundation and the Financial Reporting Council. Users should refer to the applicable accounting standards and their professional advisers for judgement-specific matters.