Finance Leasing Manual - FLM10.33

Example 1: the accounting entries

The allocation of the rentals at FLM10.31 and FLM10.32 can then be translated into accounts format


Balance Sheet At start Year 1 Year 2

Assets

Leased Asset £50,000 £50,000 £50,000

Depreciation £ 2,500 £ 5,000

£47,500 £45,000
Liabilities

Lease creditor £50,000 £41,600

Repayment £ 8,400 £ 9,200

Net £41,600 £32,400

Profit and Loss A/c

Depreciation £ 2,500 £ 2,500

Finance Charge £ 4,000 £ 3,200

There is an alternative method of presenting the liability, which involves showing in creditors all of the payments to be made under the finance lease, including the interest. Understanding this method is not essential to the appreciation of finance lease accounting.