Early Lease Termination Under FRS 102

Early lease termination occurs when a lease ends before its contractual end date. FRS 102 requires derecognition of the lease liability and ROU Asset, with any difference recognised as a gain or loss.

When to Terminate

Use the termination feature when a lease ends completely before its scheduled end date:

Use Termination For

Lease surrender by agreement, asset destruction or becoming unusable, and lease buy-outs. A break clause served under the lease is not a termination: where its date is earlier than the end of the lease term, record it as Break option exercised under Add > Modification. A break the lease was already measured to, because it was assumed reasonably certain, changes nothing and needs no entry.

Do NOT Use Termination For

A lease that runs to its end date (it needs no entry and shows as Concluded once that date has passed), an agreed shorter term that leaves the lease running (use Term reduction (agreed) under Add > Modification), or the surrender of part of the space (the change wizard does not record a reduction in space; contact support@lease102.co.uk).

Termination Accounting

Upon termination, the following accounting treatment applies:

FRS 102 Reference: FRS 102.20.70-20.73

Component	Treatment
Remaining Lease Liability	Derecognised in full
Remaining ROU Asset (NBV)	Derecognised in full
Settlement Payment	Included in the gain or loss (if any)
Difference	Gain or loss on termination

Journal Entry Format

The termination journal derecognises the liability, and the asset at cost with the depreciation charged on it. The difference, after any settlement paid, is the gain or loss.

Termination Journal Entry

Loss: liability £50,000, asset cost £60,000, depreciation to date £11,500, settlement £5,000 DR Lease Liability £50,000 DR Accumulated Depreciation - Finance Lease Assets £11,500 DR Gain or Loss on Lease Termination (loss) £3,500 CR Finance Lease Asset £60,000 CR Bank (settlement) £5,000 Gain: liability £50,000, asset cost £60,000, depreciation to date £15,000, no settlement DR Lease Liability £50,000 DR Accumulated Depreciation - Finance Lease Assets £15,000 CR Finance Lease Asset £60,000 CR Gain or Loss on Lease Termination (gain) £5,000

Recording a Termination

To terminate a lease: open the lease, click Terminate (top right), enter the termination date, any reason and any settlement payment, and click Terminate Lease. The lease then shows a Lease Terminated Early notice, and the gain or loss is calculated automatically. A break served under the lease is not a termination: where its date is earlier than the end of the lease term, record it under Add, Modification, Break option exercised.

After Termination

Once terminated: the lease shows a Lease Terminated Early notice with the termination details, the final amortisation schedule reflects the shortened term, and exports include a termination section with the accounting details.

Handle early terminations

Lease102 calculates termination gains and losses automatically per FRS 102.

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