One rate for the whole portfolio? Only if the leases are actually alike

"We'll just use one discount rate for everything." It is the most common transition shortcut, and the first thing an auditor will test.

FRS 102 gives you two rates to choose from when the rate implicit in the lease cannot be readily determined, and the choice is made lease by lease (paragraph 20.49):

• The incremental borrowing rate: what you would pay to borrow, over a similar term and with similar security, the funds needed to buy an asset like the one you are leasing.
• The obtainable borrowing rate: what you would pay to borrow, over a similar term, an amount similar to the total undiscounted lease payments.

The obtainable rate was added to FRS 102 as a simplification. It is easier to evidence, because it is closer to a rate a bank would actually quote you. But note what both definitions share: "over a similar term". A three-year van lease and a fifteen-year warehouse lease do not carry the same rate, because you would not borrow for three years and fifteen years at the same rate.

At transition, the rule is explicit. Each lease is discounted at the lessee's rate "for each lease at the date of initial application" (paragraph 1.51(a)).

There is a portfolio expedient, and it is narrower than people assume. Paragraph 1.53(a) permits a single rate for a portfolio of leases "with reasonably similar characteristics", and gives the test: a similar remaining term, a similar class of asset, a similar economic environment. Twelve delivery vans on four-year contracts qualify. Vans plus the head office do not.

Two practical points:

Evidence the rate as at the transition date, not today. Rates have moved a long way since some of these leases were signed, and the standard asks for the rate that applied on the date of initial application.

Write down the grouping. If you use the expedient, the file should show which leases were grouped, why they are similar, and the rate applied. "One rate for everything" is not a grouping.

Lease102 prices each lease at its own rate on transition, and if you apply one rate across a batch it records that as a stated 1.53(a) policy choice rather than a silent default. Reference rates from the Bank of England and the ECB are built in for dating the evidence.