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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. The example given involves a lessee renting cars and making payments of 110,000 currency units in arrears. If the lessee were to take out a loan from the bank to buy the car, the bank would charge four percent per annum, which is the incremental borrowing rate. IFRS 16 requires the lessee to recognize the right-of-use asset and lease liability at the commencement of the lease. The right-of-use asset is calculated as the lease liability plus lease payments before or on the commencement date, minus lease incentives and the lessee's initial deposit.