Finance Leasing Manual - FLM11.68

Pre-use rentals: accountancy treatment

Where payments made in the primary period involve a further element in addition to the finance charge (that is, the lessee will also be repaying some of the 'loan' as well), the payments will either be capitalised or charged against commercial profits in the period in which they are incurred. The finance charge ('interest') paid in the pre-primary period will also sometimes be capitalised. The amount capitalised then forms part of the cost of the rights to be written off under SSAP 21. The deduction for tax purposes normally follows the accounts treatment when that write off is made (see FLM11.70).