My client has recently raised £30k from a finance company who have entered into a leasing arrangement over the client company's existing plant and machinery, with 36 monthly payments required after which the assets will revert back to the company. The accompanying documents describe this as a finance lease and says that the monthly lease payments are fully tax deductible.
Are we required to continue to show these historic machine assets on the balance sheet from now on together with an outstanding lease liability? If so, how does the lease liability reduce over time if the monthly payments are put through the accounts as revenue expenditure? Is the starting liability the £30k or the value of the monthly payments x 36?
Finally, the £30k exceeds the written down value of the assets currently in the balance sheet. How do we account for this surplus?
Any help gratefully received.