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In this video tutorial, Sylvia from IFRSbox.com explains the basic method applied in lease accounting under the newest standard IFRS 16. Using a simple example of a car rental, she shows how the lessee pays four payments of 110,000 currency units in arrears each year, with an incremental borrowing rate of four percent per annum. IFRS 16 requires the lessee to recognize the right of use asset and lease liability at the commencement of the lease, based on lease payments and incentives. The lease classification is no longer relevant under this standard.