Accounting for Leases - FRS 102 and IFRS 16
Whether you're based in the UK or elsewhere in the world, accounting for leases has changed over the last few years. Back in 2019, IFRS 16 was introduced, and from January 2026 UK accountants now have FRS 102 to contend with.
So what does that actually mean?
Basically, lease/rent costs that were historically treated as expenses against the profit and loss need to be accounted for differently.
Examples being:
Lease of plant and machinery or other equipment
Lease of land and buildings
Lease of vehicles
ASC 842 (Accounting Standard Codification for US GAAP), treats operating and finance leases in different ways, but under IFRS 16 and FRS 102 leases can follow the 'Finance Lease' approach - that's where nettTracker can help. (at no additional cost too)
The 'Lease' needs to be reflected as a liability within the balance sheet, and whatever is being leased is treated as a ROU (Right of Use) Asset.
The payments previously coded directly to the profit and loss, are now recorded against the lease liability - just like repaying a loan. There are some complexities involved with calculating the lease and asset value, however, nettTracker can help make this process straight forward.
This new feature does not just provide tools for brand new leases. If an existing lease has more than 12 months left to run in the current year, then the lease needs to be introduced into the accounts at 'present value' with adjustments required to restate retained earnings.
With the Lease and ROU Asset in place, nettTracker will automatically calculate and post accounting journals every month for interest payable on the lease, and depreciation against the asset.
We've created a detailed tutorial to explain exactly how leases and assets are created in nettTracker. The tutorial includes:
Creating a new lease in the current year
Creating accruals for dilapidations
Recording the 'Deposit' and holding within 'Prepayments'
Creating a lease that is part way through the lease term
Please click on this link to view the tutorial. It is quite a detailed subject so the video is quite long, but there are time stamps available so that you can skip to a section of interest.
The loans and leases features are available within the version 2 subscription with no additional costs payable. We are currently in the process of converting all existing companies to version 2, but if you would like your company updated, please raise a support ticket and we will fast-track for you.
If you've created a trial in the past that may have expired, please contact us and we'll be happy to reinstate the trial so that you can try out all of the new features within version 2.
As always, please don't hesitate to raise a support question if you feel there is anything that we can help you with, and thank you for your continued support.
The nettTracker team