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HMRC internal manual

Business Leasing Manual

Lease accounting: finance lease accounting: finance lessees: example 1: lease terminated early - entries in lessee's accounts

On the basis of the information at BLM15540 the position will be that

  • the lessee sells the asset as agent for the lessor (the lease agreement normally provides for this)
  • the lessor receives £42,000 sale proceeds, the first £12,000 of which is used to clear the loan
  • under the terms of the lease the lessor pays the lessee a ‘terminal rebate’ (of rent) amounting to 97% of £30,000, that is £29,100.

The entries in the lessee’s accounts will be:

Debit Credit    
Lease creditor £11,600 Leased assets £40,000
Interest on termination £400    
Bank £29,100 Profit on sale £1,100
  £41,100   £41,100

See BLM15550 for a reconciliation of the total cash outlaid by the lessee.