Bargain Purchase Options (BPO)
A bargain purchase option (BPO) is a clause that lets the lessee buy the asset at the end of the lease for a price that is reasonably certain to be exercised. When a BPO is present, FRS 102 changes two things in the calculation: the option price is added to the lease liability, and the right-of-use asset is depreciated over the asset's useful economic life (UEL), not the lease term.
When is a Purchase Option "Bargain"?
Per FRS 102, an option is treated as a BPO when the lessee is reasonably certain to exercise it at the commencement date. The usual trigger is an option price that sits significantly below the asset's expected fair value at the option date: the discount makes exercise the rational economic choice. Other indicators: the lessee has already paid a substantial premium upfront, or the lease is so close to the asset's useful life that there is no realistic alternative.
FRS 102 Reference: FRS 102.20.50
Purchase Option Price in the Lease Liability
When a BPO is included, the option's exercise price is added to the present-value calculation alongside the rental payments. The liability at commencement is therefore higher than a comparable lease without a BPO, by approximately the PV of the option price at the option date.
FRS 102 Reference: FRS 102.20.50
BPO Impact on Day 1 Liability
Useful Economic Life Depreciation (the FRS 102.20.15G rule)
FRS 102.20.15G overrides the normal lease-term depreciation when ownership is expected to transfer at the end of the lease. With a BPO, depreciation runs over the asset's useful economic life (e.g. 15 years for plant), not the contractual lease term (e.g. 5 years). This matters because the ROU asset includes the BPO price, so spreading it over a short lease term would overstate annual depreciation.
FRS 102 Reference: FRS 102.20.15G
UEL field is required when a BPO is recognised
Recording in Lease102
On the lease form, the Purchase Options section lets you enter the option price, the option date, and a "reasonably certain to exercise" flag. AI extraction at import populates these from the lease document and surfaces them on the import review screen for confirmation. When the flag is on, the form prompts for the asset's useful economic life. The amortisation schedule then runs over UEL with the option price baked into the Day 1 liability.
What If The Decision Changes Later?
If your reassessment changes (the BPO becomes less certain, or only becomes certain after commencement), use the Modifications wizard to record a reassessment. FRS 102.20.54-20.58 governs the rate selection and remeasurement.
FRS 102 Reference: FRS 102.20.54-20.58
Model leases with purchase options
Lease102 handles BPO inclusion in the lease liability and UEL depreciation automatically.