Finance Leasing Manual - FLM13.31

Leased assets made subject to a new finance lease

Where assets already finance-leased (rather than owned outright) are made subject to a new finance lease, the accounting treatment under FRS5 is essentially the same as it is for an asset owned outright. Again, it does not recognise any profit or loss on the sale, but adjusts the interest charge to reflect the substance of the transaction - as a refinancing. But in these circumstances no profit or loss on a capital transaction needs to be identified and it will normally be acceptable to follow this accounting treatment for tax purposes. However, if the value of the asset used for the refinancing purposes is significantly greater than the book value of the asset it may be appropriate to enquire about the depreciation policy, see FLM12.65.