BLM20140 - Defining long funding leases: basic definition: lease accounted for as lease under GAAP (CAA01/S70K (2))

The first of the definitions in CAA01/S70K is that a plant or machinery lease is an agreement or arrangement

• under which a person grants to another person the right to use plant or machinery for a period, and
• which, in accordance with GAAP, falls (or would fall) to be treated as a lease.

The first leg of this definition refers to the legal concept of a ‘lease’ and the second leg refers to being accounted for as a lease under SSAP 21 or IAS 17 ( BLM00025). Note that not all leases are accounted for as leases, and that the second leg of this definition does not automatically follow from the fact the transaction is a lease.

A lease is treated under GAAP as a lease if it is accounted for as a lease following the principles in SSAP 21 or IAS 17. Both SSAP 21 and IAS 17 may apply to transactions that are treated as if they were leases ( BLM20145).

A lease is not treated as a lease if, for example

• it is accounted for as a service concession (for UK GAAP, FRS 5, Application Note F; for IFRS, IFRIC 12 ( BLM20150)
• the transactions do not convey the right to use an asset for an agreed period of time, that is the arrangement does not have the substance of a lease (for UK GAAP, FRS 5; for IFRS, SIC 27)
• the transaction is accounted for under IAS 39 as a financial asset or liability, or under another relevant standard, for example IAS 18, by virtue of it not being treated as a lease under SIC 27.