I’d like to ask other professionals for advice.
We have taken a building in lease on which we pay rent for every month. As per the lease we had a rent free period throughout 2017. From 1st January we should start repaying the rent. The accounts are prepared on accruals basis. My question is, from which point we should recognise liability in the balance sheet? I’m certain it should be from the point liability arose so 1st Jan despite the fact the lease was signed last year in 2017 and we benefited from the rent free period. The latter should be shown in P/L and BS to our advantage.
Looking forward to hear your opinions on this query.
Thank you!
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Replies (5)
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I was taught that the rent-free should be apportioned over the length of the lease, which will mean that when you get invoiced (assuming in advance), you’ll have a rent control account within accruals, which will reduce but remain until the end of the lease.
Eg
10yr lease @£10kpa, 1 yr rent free, (£90k payable)
P&L charge £9kpa over the full 10 yrs.
end of yr 1, there’ll be a £9k accrual. Assume invoiced at start of yr2 for a full year (£10k - ignore VAT), end of yr 2 you’ll have £9k+£9k=£18k in P&L, £10k invoiced, £8k in accruals.
It is indeed. My mistake. I didn't take into account new FRS 102. Thank you for your reply and help.
It is indeed. My mistake. I didn't take into account new FRS 102. Thank you for your reply and help.
That’s how I used to do it under FRSSE as well ...
