BLM15515 - Lease accounting: finance lease accounting: finance lessees: example 1: apportioning the rentals
This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.
Having established that the lease in this example is a finance lease, it must be accounted for in that way under FRS 102. As described at BLM13000
onwards it is necessary to split the total rentals into two components, namely
- an amount representing the 'capital' value of the lessee's rights in the asset, which is treated as an asset and depreciated as a fixed asset
- the finance charges (the amounts that equate to interest payable under the 'loan').
In this example the secondary lease period rentals can be ignored. On the facts it is clear that these are no more than a handling charge to compensate the lessor for any costs of 'holding' the asset. Whether or not rentals payable in a secondary period should be ignored will depend on the facts of each case. Ignoring the rentals payable in the secondary period the following calculation is made:
Lease rentals (£12,400 x 5 years) |
£62,000 |
Amount capitalised (treated as an asset in the balance sheet) |
£50,000 |
Finance charges |
£12,000 |