BLM15545 - Lease accounting: finance lease accounting: finance lessees: example 1: lease terminated early - entries in lessee's accounts
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.
On the basis of the information at BLM15540 the position will be that
- the lessee sells the asset as agent for the lessor (the lease agreement normally provides for this)
- the lessor receives £42,000 sale proceeds, the first £12,000 of which is used to clear the loan
- under the terms of the lease the lessor pays the lessee a 'terminal rebate' (of rent) amounting to 97% of £30,000, that is £29,100.
The entries in the lessee's accounts will be:
Debit |
Credit |
||
|---|---|---|---|
Lease creditor |
£11,522 |
Leased assets |
£40,000 |
Interest on termination |
£478 |
|
|
Bank |
£29,100 |
Profit on sale |
£1,100 |
|
£41,100 |
|
£41,100 |
See BLM15550 for a reconciliation of the total cash outlaid by the lessee.