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HMRC internal manual

Business Leasing Manual

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HM Revenue & Customs
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Lease accounting: finance lease accounting: finance lessors: accounting example

Continuing the example in BLM14040, the accounts will show the following figures:

Year Gross earnings Net Investment in lease    
         
Start of year Reduction End of year    
1 1,100 10,000 598 9,402
2 1,035 9,402 663 8,739
3 962 8,739 736 8,003
4 880 8,003 818 7,185
5 790 7,185 908 6,277
6 690 6,277 1,008 5,268
7 579 5,269 1,119 4,150
8 456 4,150 1,242 2,908
9 320 2,908 1,378 1,530
10 168 1,530 1,530  
Total 6,980   10,000  

The lease rentals receivable, £1,698 a year, are not shown in the accounts as such, but are apportioned between the gross earnings (the ‘interest’ element) and the reduction in the net investment in the lease (the ’repayment’ element). For example

year 1 1,100 + 598 = 1,698
   
year 2 1,035 + 663 = 1,698