Incremental borrowing rate (IBR)
In one sentence
The incremental borrowing rate is the rate a lessee would pay to borrow, over a similar term and with similar security, the funds needed to obtain an asset of similar value.
When the rate implicit in the lease is not readily determinable, the lessee discounts the lease payments using its incremental borrowing rate (IBR) — the rate of interest it would have to pay to borrow, over a similar term and with similar collateral, the funds necessary to obtain an asset of similar value in a similar economic environment. Choosing the IBR is one of the most judgemental parts of applying ASC 842 and IFRS 16.
Cite: ASC 842-20-30-3 / IFRS 16.26
Discount rate
The discount rate is the rate used to present-value the lease payments — the rate implicit in the lease if determinable, otherwise the incremental borrowing rate (or, for some entities, a risk-free rate).
Read definition →Lease liability
The lease liability is the present value of the remaining lease payments, discounted at the rate implicit in the lease or the lessee's incremental borrowing rate.
Read definition →See Incremental borrowing rate in a real calculation
Enter a lease and Ledgerage computes it — every figure traced back to the standard.