Finance Leasing Manual - FLM10.31

Example 1: allocating the 'interest element'

In Example 1 at FLM10.26 the Rule of 78 is likely to be acceptable as a method of splitting the rentals. Using this method to allocate the interest element of the rent (£12,000) between each year, assuming that the lease years and accounting years are coterminous:

Year 1 5/15ths* of £12,000 £4,000
Year 2 4/15ths of £12,000 £3,200
Year 3 3/15ths of £12,000 £2,400
Year 4 2/15ths of £12,000 £1,600
Year 5 1/15th of £12,000 £ 800

* 5 + 4 + 3 + 2 + 1 = 15