In part 12 of this exclusive new UK GAAP series, we will focus on new UK GAAP and accounting for leases under section 20, highlighting key differences between FRS 102 and SSAP 21
A lease is an agreement whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time. Leases are classified as operating leases or finance leases; this approach will be familiar to both UK GAAP and International Financial Reporting Standard (IFRS) preparers.
The equivalent standard and interpretations in IFRS are IAS 17 Leases and SIC 15 Operating Leases – Incentives and, in old UK GAAP, SSAP 21 Accounting for Leases And Hire Purchase Contracts and UITF Abstract 28 Operating Lease Incentives.
Looking forward, there will be a significant change in 2019 when the new IFRS 16 Leases becomes effective, since this eradicates the distinction for lessees between an operating lease and a finance lease and brings virtually all leases on to the balance sheet, with two lines charged to profit, being the asset depreciation and finance charge on the lease liability.
