BLM80155 - Sale of lessor companies and similar arrangements: business of leasing plant or machinery: condition A - business of leasing plant or machinery - example - transactions on or after 23 March 2011
This guidance covers transactions where the relevant day is on or after 23 March 2011. See BLM80153 where the relevant day is on or after 13 November 2008 and before 23 March 2011. See BLM80157 where the relevant day is before 13 November 2008.
Transport Ltd has the following assets on its balance sheet:
| Fixed Assets | £ |
|---|---|
| Freehold property | 1,000,000 |
| Net investment in train leases | 5,000,000 |
| Office furniture | 15,000 |
| Computer equipment | 100,000 |
| Buses\nLorries | 1,000,000\n400,000 |
| Artworks | 500,000 |
| Total | 8,015,000 |
Calculate the accounting value of plant or machinery
The freehold property is used as office premises by the company. The value will need to be apportioned to determine what element is attributable to plant or machinery.
Trains are plant or machinery. The train leases are accounted for as finance leases and the value of the lease rather than the train itself is shown on the balance sheet. The net investment in the lease figure is included in the calculation of the net book value of plant or machinery. The total attributable to net investment in leases is £5,000,000.
The office furniture is plant or machinery and this value is included.
The computer equipment qualifies for plant or machinery allowances and this value is included.
The buses are plant or machinery, They are leased out by the relevant company on operating leases to unrelated parties.
The lorries are plant or machinery. They are leased in under a long funding finance lease from another group company and leased out under an operating lease to an unconnected party.
The artworks do not qualify for plant or machinery allowance (unless it is part of the business to provide ambience - here it is not). This value is not included.
In addition to the above items we learn that the company leases in cars from a group company under an operating lease that is a long funding operating lease, Cars are plant or machinery.
Adjustments to the balance sheet figures
The freehold property contains lifts and air conditioning systems; these items are plant or machinery. The value of this equipment is agreed to be £300,000.
The lorries are leased in under a long funding finance lease and the ascribed value is therefore substituted for the accounting value. The ascribed value is the higher of the market value of the plant or machinery and the present value of the lease. In this case the ascribed value is the market value of the lorries which is £450,000.
The cars are leased in under a long funding operating lease and the ascribed value is to be included. The ascribed value of the cars is £80,000.
The relevant plant or machinery value, as adjusted is therefore 6,945,000
Identifying the leased out plant or machinery
You now need to determine how much of this plant or machinery is leased out plant or machinery.
The fixtures in the building are not subject to a plant or machinery lease.
The trains are subject to a lease and the relevant company is the lessor. The trains are leased out plant or machinery.
The lorries are subject to two plant or machinery leases. The relevant company is a lessor, a company that is a qualifying associate is a lessor and there is a lessee that is not a qualifying associate. The lorries are leased out plant or machinery.
The office furniture is not subject to a plant or machinery lease.
The computer equipment includes a number of items which are leased out by the relevant company. The value of the leased out equipment is £60,000.
The buses are subject to a plant or machinery lease, The relevant company is a lessor. The buses are leased out plant or machinery.
The cars are subject to a plant or machinery lease. The lessor is an associated company and the lessee is the relevant company. There neither is nor has been another lessee. These assets are not leased out plant or machinery.
Total value of leased out assets: £6,510,000
More than 50% of the assets are leased out and so the company is carrying on a business of leasing plant or machinery.