UK standards and leases

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT member discussion
Help ive forgotten how leases are covered in UK standards, and I dont trust my decade old AAT textbooks.

In international standards they divide leases into finance leases (which are capitalised) and operating leases which are not.

Is that how it works in UK standards? Or does it work where you only capitalise if you will end up owning the asset at the end of the lease. (You do not have to own the asset under IAS 17 for it to classed as a finance lease)

Hope this is clear, and any comments appreciated.
Thanks
Adrian

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:UK standards and leases

    Hi Lincs,

    Hope you are well.

    Yes, you are correct in your interpretation of the Finance lease. Any lease which transfers the risks and rewards to the lessee is capitalised in the balance sheet. Operating leases are simply put to the profit and loss account. To identify whether a lease is a finance (B/S) or operating lease (P/L) then the present value of the minimum lease payments (you have to use discounting tables i.e. NPV) must be greater than 75% of the fair value of the asset. Usually, though, they are pretty clear e.g. a HP agreement is a finance lease and therefore capitalised. That is how the International Standards refer to you not having to actually own the asset at the end of the lease for you to still capitalise it.

    Hope I've made it clear above.

    Regards
    Steve
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:UK standards and leases

    HI Steve

    Thanks for your reply. Just to be clear about it though, are you saying then that the UK standards are now actually identical to the international standards in the treatment of leases?

    Thanks
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:UK standards and leases

    Hi Lincs,

    Yes international standards are not that much different than the UK counterparts. The UK have known that global harmonisation will eventually occur and have written their FRS/SSAPs to being in tangent with IASs. There are differences but you won't notice huge, earth-shattering changes.

    SSAP 21 covers Hire Purchase and Leasing if you need any further clarification.

    Kind regards
    Steve
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:UK standards and leases

    Cheers. its a shame there's no where I can go to read the complete standard (either UK of International).

    I was wondering about purchasing them, but I guess they are expensive and a costly investment to the individual seeing as things aren't set in stone.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:UK standards and leases

    go to www.frc.co.uk (financial reporting council.) Type in the relevant FRS/SSAP you want in the search box and it will find it for you.

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:UK standards and leases

    Cheers! For years ive thought that you could only obtain the UK standards by purchasing them! I looked before but could never find them, I could of sworn they only gave a summary of each one for free.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:UK standards and leases

    It doesn't go into a great length of detail but just a summary. We have books at the office and these books are four times the size of the yellow pages! They are bloody huge! Whoever wrote them seriously needs a life.

    They also cost a fortune as well. Believe me, you don't want to go out there and buy one of those - it would take you 3 lifetimes to get through them.

    Regards
    Ste

Categories

Privacy Policy