Lease Components
Incentives, costs, restoration, and options
Incentives
FRS 102 treatment of rent-free periods, fit-out contributions, and cash incentives. Day 1 incentives reduce the ROU asset; future incentives reduce lease liability as negative cash flows.
Initial Direct Costs
Initial direct costs such as legal fees and broker commissions are capitalised into the FRS 102 ROU asset at commencement. Learn which costs qualify and how to record them.
Restoration Obligations
Restoration costs (dilapidations) are included in the FRS 102 ROU asset at their present value. Learn how to account for make-good obligations under FRS 102 Section 21.
Purchase & Extension Options
FRS 102 requires including extension periods in the lease term if reasonably certain to exercise. Learn how options affect lease liability and ROU asset calculation.
Termination Penalties
Lease termination penalties are included in FRS 102 lease liability if the lease term reflects early termination. Learn the accounting treatment and how Lease102 handles them.
Peppercorn Leases
Peppercorn leases with nominal rent (£1/year) require special FRS 102 treatment. Lease102 handles zero-payment leases automatically, calculating ROU asset at fair value.
UK Quarter Days
Quarter day payment calendars (English, Scottish, Irish) use traditional dates. Lease102 automatically calculates payments on the correct quarter days for UK property leases.
Service Charges
Service charges are typically excluded from FRS 102 lease liability as non-lease components. Learn how to separate lease and service charge elements under FRS 102 Section 20.
Rent Deposits
Rent deposits are financial assets, not lease components. Learn the correct FRS 102 accounting treatment for deposits held by landlords and how to record them in your accounts.
Lease Modifications
FRS 102 lease modifications — term extensions, rent changes, scope changes — trigger remeasurement of lease liability and ROU asset under FRS 102.20.54–20.58.
Early Lease Termination
Early lease termination requires derecognising the FRS 102 lease liability and ROU asset. Lease102 calculates the gain or loss on termination and generates the journal entry.
Impairment Recording
ROU assets are subject to FRS 102 Section 27 impairment testing. Learn how to identify impairment indicators, calculate the impairment charge, and adjust future depreciation.