Chapter 20Leases

  1. Introduction
  2. Finance Leases
  3. Operating Leases
  4. Manufacturer/Dealer Lessors
  5. Sale and Leaseback Transactions
  6. Potential Changes to Lease Accounting
  7. Small Companies


Leases serve a commercial purpose for many businesses; however, they have proved to be somewhat problematic for the accountancy profession due to the subjective nature of how they can be financially represented and the ability to manipulate transactions to achieve a desired outcome (usually to achieve ‘off-balance sheet finance’). There has been an ongoing project with the International Accounting Standards Board and the US Financial Accounting Standards Board to overhaul the ways in which leases are accounted for, which is covered later in the chapter.

Leasing is dealt with in Section 20 Leases of FRS 102. At the outset, this particular section confirms that Section 20 does not deal with the following types of leasing transactions:

  • Leases granted to a lessee to enable them to explore for or use minerals, oil, natural gas and similar non-regenerative resources (Section 34 Specialised Activities deals with these issues).
  • Licensing agreements for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights (Section 18 Intangible Assets other than Goodwill deals with these issues).
  • Measurement of property, plant and equipment held by lessees, which are accounted for as investment property and measurement of investment property provided by lessors under ...

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