BLM12010 - Lease accounting: operating lease accounting: lessor accounting for rental income

FRS 102 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.

If you find out that bases other than straight-line are in use, please let BAI 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.