SSAP 21 Accounting for Leases and Hire Purchase Contracts
Issued April 1984. Effective 1 July 1984. Amended February 1997.
SSAP 21 has been superseded by FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland for accounting periods beginning on or after 1 January 2015. For more information visit:
Synopsis
SSAP 21 prescribes the accounting for:
- Finance leases, and
- Operating leases
The accounting treatment of a finance lease in the lessees accounts is:
- Record as an asset in the balance sheet and as an obligation to pay future rentals
- Rental payments should be apportioned between the finance charge and a reduction in the obligation
- The total finance charge should be allocated to accounting periods so as to produce a constant periodic rate of return on the remaining balance of the obligation.
The rental for an operating lease should be charged by the lessee on a straight line basis over the lease term. The asset is not capitalised by the lessee.
The accounting treatment for lessors is effectively the mirror image of that for lessees:
- For a finance lease record amount due from lessee in the balance sheet as a debtor
- Allocate gross earnings to each accounting period in order to give a constant periodic rate of return on net cash investment
- For an asset held under an operating lease the lessor should record as a fixed asset in the balance sheet and depreciate the asset.
Sale and leaseback transactions are accounted for according to the type of lease and amount of sales proceeds in comparison to fair value.
Last updated 21 June 2015