Finance Leasing Manual - FLM10.62

Example 2: allocating interest element: straight-line method

If the straight line method was used to account for the lease in the example described at FLM10.50 onwards, the position would be -

• finance (interest) charges of £15,000 spread equally over 5 years, that is £3,000 p.a.

• the interest charge in year 1 being £2000 lower than using rule of 78.

Year Balance Interest Rent Paid Balance
b/f charge c/f

1. £50,000) £3,000) £1,000) £52,000
2) 52,000) 3,000) 1,000) 54,000
3) 54,000) 3,000) 1,000) 56,000
4) 56,000) 3,000) 31,000) 28,000
5) 28,000) 3,000) 31,000) ) nil