Example
Alan leases an asset to Betty. The market value of the asset
is £1 million and Alan received a grant of £150,000
towards its purchase. For the purpose of the lease payments test
that makes the fair value of the asset £850,000.
If the present value of the payments under the lease is
£750,000 it means that the lease rentals are expected to
recover £750,000 of the original cost (plus interest) and the
residual amount is £100,000.
The present value of the lease rentals is 88.2% of the fair
value (750,000/850,000) and so the lease payments test is met.
The lease does not quite meet the 90% indicative test of SSAP
21 and whether or not the lease is accounted for as a finance lease
under UK GAAP or IFRS will depend on looking at all the terms of
the lease and surrounding circumstances. However, the accounting
classification does not matter for the purpose of this test.
