Finance Leasing Manual - FLM10.06

Lessee's balance sheet

In effect, the accountancy treatment under SSAP21 is as if the trader had bought the asset and financed the purchase by way of a loan. The cost to the lessor of buying the leased asset is shown in the lessee's balance sheet as a fixed capital asset and is depreciated like a fixed capital asset. The cost (less any expected residual value) is written off over the shorter of:

• the lease term, including any secondary period or periods when it is reasonably certain that the lease will not be terminated beforehand, and

• the estimated useful life of the asset.

We would normally expect the useful life to be at least as long as the lease term (including primary and secondary periods). If this is not the case please see the further guidance on the treatment of lease rentals at FLM12.27 and FLM12.33.

The lessee's balance sheet will also show, as a liability, what is in effect the loan from the lessor.