Rent Deposits Under FRS 102: Financial Assets
A rent deposit is money you hand to the landlord and expect to get back. That makes it fundamentally different from rent, and it does not belong in the lease liability.
A deposit is not a lease payment
The lease liability is the present value of the lease payments. A refundable deposit is not consideration for the right to use the asset; it is security you expect to be returned at the end of the term. It is a receivable, not part of what you discount.
Do not put it in the liability
Where it does go
A rent deposit is recognised as a receivable from the landlord. Where the deposit is held for a long period and does not carry a market rate of interest, it is worth considering whether it should be discounted, with the difference between the amount paid and its present value treated as an additional cost of the lease.
| Item | Treatment |
|---|---|
| Refundable rent deposit | Receivable from the landlord; not a lease payment |
| Non-refundable premium paid to take the lease | Initial direct cost: increases the right-of-use asset |
| Deposit forfeited at the end of the lease | Recognised as a cost when forfeiture becomes probable |
| Deposit applied against final rents | Settles those lease payments as they fall due |
Deposit against premium
These are easy to confuse on a completion statement and they behave in opposite ways. A deposit is refundable and is your asset held by someone else. A premium is a payment for taking the lease and you do not get it back: it is an initial direct cost and increases the right-of-use asset. Read the lease rather than the label on the transfer.
When the deposit is applied to rent
Many leases allow the landlord to draw on the deposit if rent goes unpaid, and some apply it against the final months of the term. Where the deposit is applied against rent, it settles lease payments that were already in the liability; it does not create a new expense. Where it is drawn down because of a default, the receivable reduces and you would normally expect to have to top it back up.
At the end of the lease
Two things usually happen at once: the deposit becomes repayable, and any dilapidations obligation crystallises. Landlords often set one against the other. Account for them separately rather than netting them off in the accounts, because they are different balances with different histories: a receivable you have held throughout, and a provision you have been building.
In Lease102
Record the deposit against the lease so it is documented and visible with the rest of the terms, without it entering the lease payments used to measure the liability. That keeps the calculation right whilst leaving a complete record of what was paid, when, and under which clause.