Finance Leasing Manual - FLM13.14

Example showing how each method works

The facts are as follows.

• Asset purchased for £50,000; this is an ordinary purchase and not a finance lease

• The useful life of the asset is ten years.

• Depreciation rate is 10% a year straight-line.

• At the end of year 5 the owner sells the asset for £30,000 and leases it back under a five year finance lease. The asset is still expected to have a total life of ten years and so must be written down to nil by the end of Year 10.

• Rentals (excluding the finance charge element) are £6,000 pa payable in arrear.