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.

Lease components are normally accounted for separately from non-lease components. If stand-alone prices are not readily observable, estimate them using as much observable information as possible. As a practical expedient, a lessee may elect by class of underlying asset not to separate associated non-lease components and instead account for them together as a single lease component.

Initial direct costs that would not have been incurred if the lease had not been obtained are generally included in the right-of-use asset. Lease payments made at or before commencement also form part of that asset but are excluded from the lease liability. Refundable security deposits are generally separate financial assets.

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. They are normally separated using relative stand-alone prices, estimated with as much observable information as possible when prices are not readily observable, unless the lessee elects the paragraph 20.33 practical expedient by class of underlying asset.

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 payments made at or before commencement, 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 interest rate implicit in the lease if it is readily determinable. If it is not, choose on a lease-by-lease basis between the lessee’s incremental borrowing rate and the lessee’s obtainable borrowing rate. Enter the selected rate here as an annual effective rate.

FRS 102 permits either the lessee’s incremental borrowing rate or the lessee’s obtainable borrowing rate when the interest rate implicit in the lease is not readily determinable. The choice is made lease by lease; the selected rate should be supportable for that lease’s term, security and economic circumstances.

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.

This calculator does not model tax. The timing and amount of tax deductions can differ from the depreciation and interest recognised in the accounts and should be reviewed under the applicable 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.

Recoverable VAT is normally excluded from lease cash flows. Irrecoverable VAT may require different treatment, so partially exempt businesses and unusual supplies should obtain VAT advice.

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. Lease cash flows should exclude recoverable VAT; irrecoverable VAT requires a fact-specific assessment.