Reinstatement obligation
A contractual obligation to return a leased asset to a specified condition at the end of the lease — broadly synonymous with make-good and dilapidations.
Definition
A reinstatement obligation is a lessee's contractual duty to restore the leased asset to a defined state at or before the end of the lease. This is closely related to make-good obligations and dilapidations and the terms are often used interchangeably in lease agreements and accounting practice. Under IFRS 16 and amended FRS 102, where the obligation is probable and estimable, it gives rise to a provision (a liability) and a corresponding addition to the right-of-use asset at the commencement date.
Why it matters
Reinstatement obligations are a real economic cost of leasing. Failing to recognise them understates liabilities and can materially misstate the net book value of the right-of-use asset.
In AuditLease
AuditLease captures reinstatement provisions as part of the lease measurement inputs, building them into the initial ROU asset and tracking the provision separately.
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.