BLM12010 - Lease accounting: operating lease accounting: lessor accounting for rental income
This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.
This section is applicable to entities applying FRS 102 pre 2024 amendments or FRS 105, and for lessors only under IFRS 16 and FRS 102 (2024 amendments).
See BLM17000 for lessee accounting under the on-balance sheet model under IFRS 16 and FRS 102 (2024 amendments).
FRS 102 (pre 2024 amendments) Section 20.25 states that
“A lessor shall recognise lease income from operating leases (excluding amounts for services such as insurance and maintenance) in profit or loss on a straight-line basis over the lease term, unless either
(a) another systematic basis is representative of the time pattern of the lessee’s benefit from the leased asset, even if the receipt of payments is not on that basis; or
(b) the payments to the lessor are structured to increase in line with expected general inflation (based on published indexes or statistics) to compensate for the lessor’s expected inflationary cost increases. If payments to the lessor vary according to factors other than inflation, then condition (b) is not met.
The requirements under FRS 102 (2024 amendments), FRS 105 and IFRS 16 are virtually identical.
If you find out that bases other than straight-line are in use, please let a leasing technical adviser in the CTI&G team know.
Examples
The lease term is 5 years and £10,000 rentals are receivable on the first day of each of years 2 to 5. The total rentals of £40,000 should be spread evenly, with £8,000 recognised as income in each year.
The lease term is 5 years and £20,000 rentals are receivable on the first day of year 1, and £10,000 is receivable on the first day of each of years 2 to 5. The total rentals of £60,000 rentals should be spread evenly, with £12,000 recognised as income in each year.