SSAP 21 (paragraph 43) states that
“Rental income from an operating lease, excluding charges for services such as insurance and maintenance, should be recognised on a straight-line basis over the period of the lease, even if the payments are not made on such a basis, unless another systematic and rational basis is more representative of the time pattern in which the benefit from the leased asset is receivable.”
IAS 17 (paragraph 50) takes a very similar approach:
“Lease income from operating leases shall be recognised in income on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished.”
If you find out that bases other than straight-line are in use,
please let CT & VAT (Technical) know.
Examples
The lease term is 5 years and £10,000 rentals are
receivable on the first day of each of years 2 to 5. The total
rentals of £40,000 should be spread evenly, with £8,000
recognised as income in each year.
The lease term is 5 years and £20,000 rentals are
receivable on the first day of year 1, and £10,000 is
receivable on the first day of each of years 2 to 5. The total
rentals of £60,000 rentals should be spread evenly, with
£12,000 recognised as income in each year.
