A lessor may make stage payments to a manufacturer prior to
commencement but under GAAP these are not recognised as the net
investment in the lease until the asset is bought into use by the
lessee, or that date from which rentals first accrue if earlier (UK
GAAP - inception), or the date from which the lessee is entitled to
use the asset (IFRS - commencement).
For tax purposes, such arrangements are regarded as leases of
plant or machinery from inception (
BLM20160).
Example
A lessor bank pays for a ship by three instalments of
£10m on 1 June 2007, 1 June 2008 and 1 June 2009. The ship is
leased out under a long funding finance lease and delivered to the
lessee immediately it is complete on 1 June 2009.
The lessor records its investments of £10m on 1 June
2007 and £20m on 1 June 2008 as financial assets. The
lessor’s net investment in the lease is first recognised at
inception (UK GAAP) or the commencement (IFRS) of the term of the
lease on 1 June 2009 as £30m.
