Finance Leasing Manual - FLM31.45
Second condition: repayment of investment
A further element of the definition of a 'major lump sum' is
that it must contain a part which for accounting purposes is to be
regarded in accordance with normal accounting practice as a
repayment of some or all of the investment in respect of the
finance lease or loan.
Paragraph 28 Schedule 12 FA 1997 and the definition of
'accounting purposes' in Paragraph 30(1) ensure that it is
necessary to have regard to the correct treatment in accordance
with UK accounting standards as they apply either to the lessor or
in the consolidated accounts of a group of which the lessor is a
member or in the accounts of a connected person. It is possible to
deem into existence accounts of any lessor or connected person
correctly drawn up in accordance with UK accounting standards if
such accounts do not already exist. It is also possible to deem
into existence consolidated group accounts in circumstances where
it is possible to do so for the purpose of determining whether a
lease is a finance lease, as set out in FLM31.15.
An 'investment in respect of a finance lease' is not
precisely equivalent to any of the defined terms used in SSAP 21
and attempts to align it with any of terms used in the SSAP should
be resisted. The lessor's outlay on the leased asset, in substance
the loan principal, reduced to the extent it has been 'repaid' in
the form of lease rentals, will at any time be equal to 'some or
all of the investment'.
For this purpose the investment does not include sums added
to the lessor's outlay which represent:
- the lessor's own funding costs;
- rolled up 'negative depreciation' (equivalent to rolled up interest on a loan) and
- the lessor's incidental costs of purchasing the asset and entering into the lease.
