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HMRC internal manual

Business Leasing Manual

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HM Revenue & Customs
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Lease accounting: lease classification: 'fair value'

The ‘fair value’ of the leased asset is, at its simplest, usually its cost.

But cases may not always be simple, particularly where the asset is not new when leased.

Paragraph 25 of SSAP 21 defines ‘fair value’ as being

“the price at which an asset could be exchanged in an arm’s length transaction less, where applicable, any grants receivable towards the purchase or use of the asset.”

The definition in IAS 17 is similar, but does not refer to grants receivable as reducing fair value:

“fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.”

The definition of fair value in the FRS102 glossary is the same as the IAS17 definition.