Finance Leasing Manual - FLM10.58

Example 2: Rule of 78: whether acceptable

There are two steps to consider in deciding whether the Rule of 78 is an acceptable method for the circumstances of Example 2 (see FLM10.55 onwards).

• First and foremost, is the method of apportionment used in accordance with generally accepted accounting practice. This is an accountancy issue, and it is crucial that detailed accountancy advice should be sought from your liaison accountancy unit.

• Secondly, accounts consistent with generally accepted accounting practice might nonetheless be overridden for tax purposes if the accounting practice is not consistent with the underlying facts (see Threlfall v Jones, 66 TC 77 and IM605c/e). The facts would probably have to be exceptional for this to apply, but in a case where substantial amounts at stake it may well be worth checking the facts and seeking advice from BTD4 Leasing.