Why your vehicle lease spreadsheet breaks in month one

If you lease vehicles in the UK, the payment profile almost certainly reads "9 plus 35" or "12 plus 47": an initial rental equal to nine or twelve months' rent, then thirty-five or forty-seven monthly payments. Every major fleet provider structures contracts this way.

Under FRS 102 Section 20 these profiles create a specific problem that most spreadsheets get wrong.

The initial rental is not just a large first payment. It is paid at commencement, so it is part of the cost of the right-of-use asset (paragraph 20.47(b)) and it is left out of the lease liability, which is the present value of the payments not yet paid at that date (paragraph 20.49).

So the right-of-use asset and the lease liability start at different figures on day one.

From there, two schedules run side by side:

• The asset is depreciated from commencement to the end of the lease term (paragraph 20.58): thirty-six months on a 9+35 contract.
• The liability unwinds over the thirty-five remaining payments, interest first, then principal.

Get the month-one split wrong and every journal for the next three years is misstated.

A quick check for anyone modelling this in a spreadsheet: if the right-of-use asset and the lease liability are the same figure at commencement, the initial rental has been treated as an ordinary payment, and the model has a problem.

Lease102 reads the initial rental from the contract as a payment at commencement, keeps it out of the liability and in the asset, and produces both schedules from the source document.