Example
A lessor acquires a new ship for £50m. The ship is
leased out for 20 years under long funding operating lease. At
commencement it is estimated that the market value of the ship at
the end of the lease term will be £10m.
The expected reduction in value is £40m. This is spread
over the term of the lease, so that, for each full year, a
deduction of £2m is available.
If the lessor has a year-end of 31 December and the lease
commences on 1 July 2008 the available deduction in the year to 31
December 2008 is:
£2,000,000 x 184 / 365 = £1,008,219.
Assuming the lease continues without any additional capital
expenditure (see
BLM41020) the deduction available in
each of the calendar years from 2009 to 2026 is £2,000,000.
The deduction available in 2027 is:
£2,000,000 x 181 / 365 = £991,781
See BLM41035 for guidance on further adjustments that may need to be made when the lease terminates.
