What is the treatment of the right of use asset after its initial recognition?

After the initial recognition of a right-of-use asset, the correct treatment involves depreciating the asset over the shorter of the lease term or the asset's useful economic life. This approach aligns with the principles outlined in accounting standards such as IFRS 16, which governs lease accounting.

The right-of-use asset represents a lessee's right to use an underlying asset during the lease term. Since this right has a finite economic useful life – determined either by the duration of the lease or the physical life of the asset – depreciation serves to allocate the cost of the asset over the period that it will contribute to generating economic benefits.

This treatment helps to match expenses to revenues in financial reporting, ensuring that financial statements accurately reflect the wear and tear or usage of the underlying asset over time. This systematic allocation is essential for providing a fair representation of the financial position and performance of the entity.

The other options do not align with standard accounting practices surrounding right-of-use assets. For example, revaluing the asset annually is not a requirement, as the asset is typically measured at cost less accumulated depreciation. Immediate expensing of the asset would not reflect its utility over time, and stating that it is not subject to depreciation contradicts the basic principles of asset management in accounting