Lease accounting: operating lease accounting: lessor accounting for depreciation and costs
There is a difference in the way in which leased assets may be depreciated by the lessor under IFRS (and FRS101) and UK GAAP (SSAP21).
For IFRS and FRS101, IAS 17 (paragraph 53) requires the depreciation policy for leased assets to be consistent with the lessor’s normal depreciation policy for similar (non-leased) assets.
Under UK GAAP SSAP 21 left it was possible for different policies to be used for leased and non-leased assets of a similar nature.
For those UK GAAP entities adopting FRS102, Section 20 paragraph 26 requires that “The depreciation policy for depreciable leased assets shall be consistent with the lessor’s normal depreciation policy for similar assets”.
There is also a difference in the manner in which initial indirect costs incurred by a lessor in negotiating and arranging a lease are accounted for under IAS 17 and SSAP21.
SSAP 21 (paragraph 44) says that “such costs may be apportioned over the period of the lease on a systematic and rational basis”. This implies that initial direct costs may also be expensed as incurred. The accountancy treatment will not affect whether the costs are capital or not - see BLM37000.
IAS 17 paragraph 52 requires that “such costs shall be added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the leased income”.
FRS102 is the same as IAS 17 in respect of initial direct costs. Section 20 paragraph 27 says:
“A lessor shall add to the carrying amount of the leased asset any initial direct costs it incurs in negotiating and arranging an operating lease and shall recognise such costs as an expense over the lease term on the same basis as the lease income”.