Answer:
The balance in right-of-use asset after two years using straight-line method is $428,571.
Explanation:
Right-of-use asset is simply the lessee's right to the use of leased asset under the agreed terms. The term came into being as a result of IFRS 16 Leases, which replaced IAS 17.
Using straight-line method, depreciation expense is calculated as (Cost - Residual Value) / No of useful life
The economic life of the asset is what we would use as the useful life and not the lease term since that approximates the useful life of the asset.
Therefore, depreciation = ($600,000 - 0) / 7 years = $85,714 yearly
Accumulated depreciation for 2 years is $85,714 x 2 = $171,429 approximately
Therefore, the balance (net book value) in the right-of-use asset after two years will be $600,000 - $171,429 = $428,571
