BLM14005 - Lease accounting: finance lease accounting: finance lessors: Net investment in lease
A finance lessor’s accounts show no physical asset in its balance sheet even though it owns the leased asset.
Instead a finance lessor has to record the amount due from the lessee under a finance lease in his balance sheet as a debtor at the amount of the net investment in the lease (FRS102 Section 20.17). This figure is the one that can be envisaged as the amount of the loan.
FRS 102 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.