BLM12010 - Lease accounting: operating lease accounting: lessor accounting for rental income
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听to entities applying FRS 102 pre 2024 amendments or FRS 105, and for lessors only under IFRS 16 and FRS 102 (2024 amendments).听
See BLM17000听for lessee accounting under the on-balance sheet model under IFRS 16 and FRS 102 (2024 amendments).听
FRS 102听(pre 2024 amendments)听Section 20.25听states that听
鈥淎 lessor shall recognise lease income from operating leases (excluding amounts for services such as insurance and maintenance) in profit or loss on a straight-line basis over the lease term, unless either听
(a) another systematic basis is representative of the time pattern of the lessee鈥檚 benefit from the leased asset, even if the receipt of payments is not on that basis; or听
(b) the payments to the lessor are structured to increase in line with expected general inflation (based on published indexes or statistics) to compensate for the lessor鈥檚 expected inflationary cost increases.听 If payments to the lessor vary according to factors other than inflation, then condition (b) is not met.听
The requirements听under FRS 102 (2024 amendments), FRS 105 and IFRS 16听are听virtually identical.听
If you find out that bases other than straight-line are in use, please let a听leasing technical adviser in the CTI&G team听know.听
Examples听
The lease term is 5 years听and 拢10,000 rentals are receivable on the first day of each of years 2 to 5.听 The total rentals of 拢40,000 should be spread evenly, with 拢8,000 recognised as income in each year.听
The lease term is 5 years听and 拢20,000 rentals are receivable on the first day of year 1, and 拢10,000 is receivable on the first day of each of years 2 to 5.听 The total rentals of 拢60,000 rentals should be spread evenly, with 拢12,000 recognised as income in each year.听听
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