BLM15010 - Lease accounting: finance lease accounting: finance lessees: balance sheet (general)

FRS 102 Section 20.9 says

“.. a lessee shall recognise its rights of use and obligations under finance leases as assets and liabilities …”.

This means that finance lessees are required to show

• the leased asset as its property in its balance sheet even though it doesn’t legally own it; and
• the capital element it is due to pay in the rentals (the ‘loan’) as a liability in its balance sheet.

This makes it clear to the world at large just how much the lessee has, in effect, borrowed.

FRS 102 Section 20.12 says

“A lessee shall depreciate an asset leased under a finance lease in accordance with Section 17 Property, Plant and Equipment”.

This means that although the asset is not owned it is depreciated in the same way as an owned asset unless it is reasonably certain that the lessee will not obtain ownership in which case the leased asset is depreciated over the shorter of the lease term and its useful life.

There is further guidance in the following paragraphs.