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Leases

Leases. Janice MacPhail Finance Manager SEHD. Leases – Accounting rules. SSAP 21 Accounting for leases and hire purchase contracts FRS 5 – reporting the substance of Transactions Treasury guidance note on FRS 5 – complex or PFI transactions. Classification of leases.

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Leases

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  1. Leases Janice MacPhail Finance Manager SEHD

  2. Leases – Accounting rules • SSAP 21 Accounting for leases and hire purchase contracts • FRS 5 – reporting the substance of Transactions • Treasury guidance note on FRS 5 – complex or PFI transactions

  3. Classification of leases • Distinction between Operating and Finance • Finance Lease one that transfers substantially all the risks and rewards of ownership of an asset to the lessee • Operating lease one that is not a finance lease • 90% test

  4. Other Factors • if the lessee can cancel the lease, will he bear any losses associated with the cancellation? • will the lessee gain or lose from any fluctuations in the market value of the residual? • does the lessee have the ability to continue to lease the asset for a secondary term at a nominal rental?

  5. Other Factors…cont • is the expected lease term equal to substantially all of the asset's expected useful life? • are the leased assets of a specialised nature such that only the lessee (or a limited number of other parties) can use them without major modifications being made?

  6. How to proceed • Ensure finance department is involved at a very early stage • Consult with external auditors before the lease is agreed.

  7. Way forward • NHS LIFT for Scotland • ASB : “Leases: Implementation of a New Approach” Dec 1999

  8. Contact details Address: Janice MacPhail Finance Directorate Scottish Executive Health Department 16 Waterloo Place EDINBURGH Tel: 0131 244 2811 Email: Janice.macphail2@scotland.gsi.gov.uk

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