SP3/91 (see
BIM61105) should be applied to leases
entered into on or after 12 April 1991. SP3/91 confirms that
finance lease rentals are revenue outgoings which should be
allocated to periods of account in accordance with generally
accepted accounting practice.
The principal difference between the treatment set out in
SP3/91 and that for earlier finance leases is that for leases to
which SP3/91 applies rentals should be spread beyond the primary
period of the lease where that period is shorter than the useful
economic life of the asset.
The change in approach was a response to the growing practice
of writing leases with primary periods which were much shorter than
the useful life of the asset concerned. The effect of the previous
practice was to give relief for the rentals over a much shorter
period than that over which the business enjoyed the benefits to be
derived from the leased asset. This was contrary to the accruals
concept. In one case a lessee sought to write off over three years
the entire cost of a leased aircraft which had a life of twenty
years.
