Finance Leasing Manual - FLM10.62

Example 2: straight-line method: accounting entries

In Example 2, using a straight-line basis for allocating the 'interest element' of the rentals, the accounting entries would then be-
Balance Sheet End

Year 1 Year 2 Year 3 Year 4 Year 5

Assets

Leased Asset £50,000 £50,000 £50,000 £50,000 £50,000

Depreciation 2,500 5,000 7,500 10,000 12,500

Net 47,500 45,000 42,500 40,000 37,500

Liabilities

Lease creditor 50,000 52,000 54,000 56,000 28,000

Repayment (2,000) (2,000) (2,000) (28,000) (28,000)

Net 52,000 54,000 56,000 28,000 Nil

Profit and Loss A/c

Depreciation 2,500 2,500 2,500 2,500 2,500

Finance Charges 3,000 3,000 3,000 3,000 3,000