Treatment of leased assets

System · March 2004

I am buying equipment on lease purchase, I am then going to rent out the equipment for the same amount as the lease. Can i put the equipment on the fixed asset register as a zero cost and have no depreciation.

System · March 2004

Treatment of leased assets

You should record the purchase at cost and depreciate it as normal. You would then need to show the rent as income. If any one of the transactions can stand alone then they are two separate transactions and should be recorded as such. This ensures that the revenue and expenditure are properly stated

System · March 2004

Treatment of leased assets

Thanks Alexander, I don't want to suffer the depreciation as effectively i am not paying anything for the equipment, I will own it at the end of 3 years but the cost would have been covered by the rental income. The rental income will have a tax liability but this will be netted off by the leaseing cost, is there any way around this

System · March 2004

Treatment of leased assets

Off balance sheet accounting, Terry? ;o) Unfortunately, the asset at the end of three years is going to be less than what it was worth at the time you became the beneficial owner. Depreciation will need to be charged to reflect this. SSAP 21 Accounting for leases and hire purchase contracts and FRS 5 cover this. However, all is not lost and if you follow the rules you'll see you don't really end up with an excessive charge to the P&L. The amount you pay to the lessor for the asset needs to be apportioned to the P&L (interest) and partly as capital repayment. Over the three year period the interest and depreciation charge may even be less than the rental income you've received if there is still useful economic life left in the asset i.e. if the asset is depreciated at a period greater than three years. BTW, you can use the sum of digits method to work out the interest charge.

Treatment of leased assets

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