[et_pb_section bb_built=”1″ admin_label=”Header – All Pages” transparent_background=”off” background_color=”#1e73be” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” custom_padding=”0px||0px|” next_background_color=”#000000″ custom_padding_tablet=”50px|0|50px|0″ custom_padding_last_edited=”on|desktop” global_module=”1221″][et_pb_row admin_label=”row” global_parent=”1221″ make_fullwidth=”off” use_custom_width=”off” width_unit=”on” use_custom_gutter=”off” custom_padding=”||5px|” allow_player_pause=”off” parallax=”off” parallax_method=”on” make_equal=”off” parallax_1=”off” parallax_method_1=”off” background_position=”top_left” background_repeat=”repeat” background_size=”initial”][et_pb_column type=”4_4″][et_pb_post_title global_parent=”1221″ title=”on” meta=”off” author=”on” date=”on” categories=”on” comments=”on” featured_image=”off” featured_placement=”below” parallax_effect=”on” parallax_method=”on” text_orientation=”left” text_color=”light” text_background=”off” text_bg_color=”rgba(255,255,255,0.9)” module_bg_color=”rgba(255,255,255,0)” use_border_color=”off” border_color=”#ffffff” border_style=”solid” custom_padding=”10px|||” parallax=”on” background_color=”rgba(255,255,255,0)” /][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” custom_padding=”30px||0px|” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” background_color=”#1e73be” prev_background_color=”#000000″ next_background_color=”#ffffff” custom_padding_tablet=”0px||0px|” global_module=”1228″][et_pb_row global_parent=”1228″ make_fullwidth=”off” use_custom_width=”off” width_unit=”on” use_custom_gutter=”off” custom_padding=”30px||0px|” allow_player_pause=”off” parallax=”off” parallax_method=”off” make_equal=”off” parallax_1=”off” parallax_method_1=”off” column_padding_mobile=”on” background_position=”top_left” background_repeat=”repeat” background_size=”initial”][et_pb_column type=”4_4″][et_pb_text global_parent=”1228″ background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid” background_position=”top_left” background_repeat=”repeat” background_size=”initial”]
[breadcrumb]
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section bb_built=”1″ fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″ custom_padding_tablet=”0px||0px|” custom_padding_last_edited=”on|desktop” prev_background_color=”#1e73be” next_background_color=”#000000″][et_pb_row][et_pb_column type=”4_4″][et_pb_toggle admin_label=”Index” _builder_version=”3.0.98″ open=”off” title=”Index”]
Section 20: Leases.
20.2.1 Extract from FRS 102 – Section 20.1-20.2.
20.2.2 OmniPro comment – Scope.
20.3 Determining whether an arrangement contains a lease.
20.3.1 Extract from FRS 102 – Section 20.3- 20.3A.
20.4 Classification of leases.
20.4.1 Extract from FRS 102 – Section 20.4- 20.7.
20.4.2.1 Risks and rewards of ownership.
20.4.2.2 Lease term defined and major part of an asset life – option to extend.
20.4.2.4 Indicators suggesting a finance lease exists.
20.4.2.4.1 Option to purchase at end of lease – put and call options / residual value guarantees.
20.4.2.4.2 Meaning of substantially in respect to present value of future payment
20.5 Change in lease classification.
20.5.1 Extract from FRS 102 – Section 20.8.
20.6 Initial recognition and subsequent measurement-financial statements of lessees: finance leases
20.6.1 Extract from FRS 102 – Section 20.9- 20.12.
20.6.2.2 Interest rate implicit in the lease.
20.6.2.3 Minimum lease payments including options to extend.
20.6.2.4 Depreciation of leased assets.
20.6.2.6 Lessee: Initial and subsequent measurement – finance lease.
20.7.1 Initial Recognition and subsequent measurement
20.7.1.1 Extract from FRS 102 – Section 20.15-20.15B.
20.7.1.2.2 Time when expense is recognised.
20.7.1.2.3 Costs directly incurred in negotiating/arranging lease.
20.7.1.2.4 Treatment of termination penalties.
20.7.1.2.5 Operating leases with payment linked to other variables.
20.8 Initial recognition and subsequent measurement -financial statements of lessors: finance leases
20.8.1 Extract from FRS 102 – Section 20.17-20.19.
20.9 Manufacturer or dealer lessors.
20.9.1 Extract from FRS 102 – Section 20.20-20.22.
20.10 Financial statements of lessors: operating leases.
20.10.1 Extract from FRS 102 – Section 20.24-20.25 and Section 20.27-20.29.
20.10.1.1 Recognition and measurement
20.10.1.2.2 Time when expense is recognised.
20.10.1.2.3 Costs directly incurred in negotiating/arranging lease.
20.10.1.2.4 Operating lease with payments linked to other variables.
20.10.1.2.5 Lease incentives – lesser
20.11 Sale and leaseback transactions.
20.11.1 Extract from FRS 102 – Section 20.32-20.34.
20.11.2.1 Sales and lease back defined.
20.11.2.2 Sales and lease back – finance lease.
20.11.2.3 Sales and lease back – operating lease.
20.12.1 Disclosures for operating leases – Lessors.
20.12.1.1 Extract from FRS 102 – Section 20.30.
20.12.1.2.1 Accounting policy note.
20.12.1.2.2 Extract from notes to the financial statements.
20.12.2 Disclosures – Operating leases for lessees.
20.12.2.1 Extract from FRS 102 – Section 20.
20.12.2.2.1 Accounting policy example.
20.12.2.2.2 Notes to the financial statements.
20.12.3 Sale and leaseback disclosures.
20.12.3.1 Extract from FRS 102 Section 20.35.
20.12.4 Disclosures – financial statements of lessees: finance leases.
20.12.4.1 Extract from FRS 102 – Section 20.13- 20.14.
20.12.4.2.1 Accounting policy disclosures.
20.12.4.2.2 Extract from notes to the financial statements.
20.12.5 Disclosures – financial statements of lessors: finance leases.
20.12.5.1 Extract from FRS 102 – Section 20.23.
20.12.5.2.1 Accounting policy disclosure.
20.12.5.2.2 Extract from notes to the financial statements
[/et_pb_toggle][/et_pb_column][/et_pb_row][et_pb_row][et_pb_column type=”3_4″][et_pb_text admin_label=”Main Body Text” text_orientation=”justified” use_border_color=”off” border_color_all=”off” module_alignment=”left” _builder_version=”3.17.6″]
The below extracts and guidance is applicable for periods beginning before 1 January 2019 and are based on the September 2015 version of FRS 102. For periods beginning on or after 1 January 2019, the March 2018 version of FRS 102 applies which incorporates the changes made by the Triennial review of FRS 102. Note the March 2018 version of FRS 102 can be voluntarily applies for periods beginning before 1 January 2019. For the extracts from the March 2018 version of FRS 102 and the related guidance please click on the following link. For details of a summary of the main changes as a result of the triennial review please see the following link.
20.2 Scope
20.2.1 Extract from FRS 102 – Section 20.1-20.2
20.1 This section covers accounting for all leases other than:
(a) leases to explore for or use minerals, oil, natural gas and similar non- regenerative resources (see Section 34 Specialised Activities);
(b) licensing agreements for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights (see Section 18 Intangible Assets other than Goodwill);
(c) measurement of property held by lessees that is accounted for as investment property and measurement of investment property provided by lessors under operating leases (see Section 16 Investment Property);
(d) measurement of biological assets held by lessees under finance leases and biological assets provided by lessors under operating leases (see Section 34);
AND
(e) leases that could lead to a loss to the lessor or the lessee as a result of non-typical contractual terms (see paragraph 12.3(f)).
20.2 This section applies to agreements that transfer the right to use assets even though substantial services by the lessor may be called for in connection with the operation or maintenance of such assets. This section does not apply to agreements that are contracts for services that do not transfer the right to use assets from one contracting party to the other.
20.2.2 OmniPro comment – Scope
Sections 20.1 and 20.2 of FRS102 details the scope of the section
In relation to section 20.1(c) of FRS102 above, it is clear that where a property is leased to a third party under a finance lease, then it cannot be treated as an investment property on the basis that leasing an asset under a finance lease has no real difference to selling the asset.
In relation to Section 20.1(e) of FRS 102, contingent rents are specifically scoped into Section 20. Therefore, a lease which incorporate terms stating that the rent payable for the asset will vary according to future sales or amount of future use or future prices indices or market rates would come within Section 20 and are not what is referred to in Section 20.1 (e) FRS102 above.
Agreements that transfer the right to use assets contain leases even if the lessor is obliged to provide substantial services in connection with the operation or maintenance of the assets.
[/et_pb_text][/et_pb_column][et_pb_column type=”1_4″][et_pb_toggle _builder_version=”3.0.98″ title=”Practical Examples” open=”off”]
Example 1: Residual value guarantee.
Example 2: Changes in lease classification.
Example 3: Accounting for finance leases – initial recognition and subsequent measurement– Lessee
Example 4: Operating lease with inflationary increases.
Example 4A: Leases linked to general inflation indexes.
Example 6: Finance lease accounting for the lessor
Example 7: Finance lease accounting for the lessor – change in residual value.
Example 8: Operating lease with inflationary increases.
Example 10: Sale and Leaseback
Example 10A: Extract from an accounting policy note and the related disclosures – Operating Lease.
[/et_pb_toggle][/et_pb_column][/et_pb_row][/et_pb_section]