Finance Leasing Manual - FLM10.43

Lease terminated early: entries in lessee's accounts

On the basis of the information at FLM10.42 the position will be that-

• the lessee sells the asset as agent for the lessor (the lease agreement normally provides for this)

• the lessor receives £42,000 sale proceeds, the first £12,000 of which is used to clear the loan

• under the terms of the lease the lessor pays the lessee a 'terminal rebate' (of rent) amounting to 97% of £30,000, that is £29,100.

The entries in the lessee's accounts will be-

Debit Credit

Lease creditor £11,600 Leased assets £40,000
Interest on
termination 400
Bank 29,100 Profit on sale 1,100
------- ------
£41,100 £41,100

See FLM10.44 for a reconciliation of the total cash outlaid by the lessee.