BLM14005 - Lease accounting: finance lease accounting: finance lessors: Net investment in lease
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).
A finance lessor's accounts show no physical asset in its balance sheet even though it owns the leased asset. Instead a finance lessor records the amount due from the lessee under a finance lease in the balance sheet as a debtor at the amount of the net investment in the lease (FRS102 (pre 2024 amendments) 20.17). This figure is the one that can be envisaged as the amount of the loan.
FRS 102 (pre 2024 amendments) defines the net investment in a lease as the gross investment in a lease discounted at the interest rate implicit in the lease. The gross investment in a lease is the aggregate of:
the minimum lease payments receivable by the lessor under a finance lease; and
any unguaranteed residual value accruing to the lessor.
The minimum lease payments are defined in BLM11010.
The same principles apply for finance lease accounting for lessors under FRS 105, FRS 102 (2024 amendments) and IFRS 16.