BLM11020 | Lease accounting: lease classification: 'fair value'

This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.

This section is applicable to entities applying FRS 102 pre 2024 amendments or FRS 105, and for lessors only under IFRS 16 and FRS 102 (2024 amendments).

See BLM17000 for lessee accounting under the on-balance sheet model under IFRS 16 and FRS 102 (2024 amendments).

The ‘fair value’ of the leased asset is, at its simplest, usually its cost.

But cases may not always be simple, particularly where the asset is not new when leased.

The FRS 102 (pre 2024 amendments) Glossary defines ‘fair value’ as:

“The amount for which an asset could be exchanged, a liability settled, or an equity instrument granted could be exchanged, between knowledgeable, willing parties in an arm’s length transaction”.

FRS 102 (2024 amendments) and IFRS 16 use the same definition for the purposes of applying the lessor accounting model.