FRS 102 Lease Calculator

Known or contractual balloon payments should normally be included in the lease payments at commencement and discounted in the same way as other fixed payments. They increase the initial lease liability and right-of-use asset.

If exercising the purchase option is reasonably certain, include the purchase price in the lease payments and depreciate the right-of-use asset over the asset’s useful life. If exercise is not reasonably certain, exclude the purchase price and depreciate over the lease term.

No, where they are distinct and observable. Service and non-lease components should normally be separated from the lease component. Only the lease component is included in the lease liability and right-of-use asset calculation.

Initial direct costs that are directly attributable to negotiating and arranging the lease are usually capitalised as part of the right-of-use asset. Non-refundable upfront payments may form part of lease payments. Refundable security deposits are generally financial assets rather than lease payments.

Yes, a portfolio approach may be appropriate where leases have similar characteristics, such as term, asset class, risk profile and security. The outcome should not be materially different from assessing leases individually.

No. Cars and vans are generally not treated as low-value assets for this purpose.

Common non-lease components include maintenance, tyres, roadside assistance, insurance, telematics and replacement vehicle services. If material and separately observable, these should be excluded from the lease liability and expensed as incurred.

Costs paid to or through the lessor that are directly attributable to preparing the asset for use may be included in the right-of-use asset. Recurring road tax or service-type costs are generally expensed as incurred where distinct.

Excess mileage charges are usually variable payments based on usage and are expensed when incurred. They are not included in the initial lease liability unless they are in-substance fixed or represent unavoidable minimum payments.

End-of-lease damage charges are usually expensed when incurred. If damage occurs earlier and an outflow becomes probable and measurable, a provision may be needed. For a write-off, derecognise the right-of-use asset, remeasure any remaining lease liability and account for insurance proceeds separately when sufficiently certain.

If the business is reasonably certain to purchase the asset, the guaranteed future value or purchase amount should be included in lease payments and depreciation should be over the useful life. If purchase is not reasonably certain, exclude it and depreciate over the lease term.

Termination penalties are included in the lease liability if the lease term reflects exercising the termination option. Otherwise, penalties are usually expensed when incurred and the right-of-use asset and lease liability are remeasured or derecognised as appropriate.

Yes. If the lessor has substantive substitution rights and you do not control a specific identified asset, further assessment is needed to determine whether the arrangement is a lease or a service. Many fleet contracts identify specific vehicles, which often points towards a lease.

Battery-as-a-service and charging subscriptions are often non-lease service components, unless an identified asset is controlled by the lessee. Chargers owned by the business are usually PPE. Government grants are accounted for under grant guidance and do not reduce lease payments unless paid to or through the lessor.

The lease liability usually includes fixed payments, in-substance fixed payments, certain termination penalties and purchase option payments where exercise is reasonably certain. Variable payments based on usage are normally excluded unless they are in-substance fixed.

The right-of-use asset is generally measured as the lease liability, plus initial direct costs and restoration obligations, less lease incentives received.

If ownership transfers or purchase is reasonably certain, depreciate over the useful life. Otherwise, depreciate over the lease term. Straight-line depreciation is commonly used unless another systematic basis better reflects the consumption of benefits.

Use the rate implicit in the lease if readily determinable. If not, use an incremental borrowing rate or a supportable borrowing rate that reflects the lease term, security, asset risk and the entity’s credit profile.

An obtainable or observable borrowing rate is a supportable market rate that the entity could obtain for borrowing over a similar term with similar security and risk. It can be used as evidence for the incremental borrowing rate, although the standard refers to the IBR.

Usually not across dissimilar leases. Grouped rates may be appropriate where leases are homogeneous, for example by asset class, lease term and security. Outliers should be assessed separately.

Useful evidence may include lender quotes, treasury pricing, date of quote, security, fees, covenants, conversion from nominal or APR rates to an effective annual rate and a documented sign-off trail.

The monetary lease liability is translated at the spot rate at commencement. The right-of-use asset, being non-monetary, is initially translated at the same spot rate. The liability is then retranslated at each reporting date, with exchange differences recognised in profit or loss.

Often not in total, but the timing may differ because the accounts now show depreciation and interest rather than a single rent expense. Tax treatment continues to depend on the underlying tax rules.

For many lessees, the corporation tax computation may add back right-of-use depreciation and lease finance cost, then deduct allowable lease rentals under the relevant tax rules. Specific treatment depends on the asset, lease type and tax legislation.

Yes. Lease finance costs may affect Corporate Interest Restriction calculations, interest cover and covenant metrics, depending on the facts and the wider group position.

For VAT, the treatment follows the underlying supply and invoice. Rent-free periods may mean no VAT-bearing consideration for that period. For tax, incentives may be spread differently from the accounting treatment, so the tax computation may need adjustments.

The lease liability should generally be measured using amounts net of VAT. VAT recovery follows VAT legislation and is not changed by lease accounting.

For UK cars, input VAT on leasing is commonly partly blocked where there is private use, while maintenance VAT may be recoverable if business-related. Commercial vehicles may have fuller recovery where used for taxable business activities. VAT advice should be obtained for specific facts.

Refundable deposits are usually outside the scope of VAT until applied or forfeited and are generally financial assets. Non-refundable amounts paid at inception may be consideration for the supply and may attract VAT. The lease cash flows used for accounting should be net of VAT.