BLM17060 - Lease accounting under IFRS 16 and FRS 102 (2024 amendments): sub lease

This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.

IFRS 16.B58 and FRS 102 (2024 amendments) 20.92听蝉迟补迟别:听听

鈥業n classifying a sublease, an intermediate lessor shall classify the sublease as a finance lease听or an operating lease as follows:听听

(a) if the head lease is a short-term lease that the entity, as a lessee, has accounted for applying IFRS 16.6/ FRS 102 (2024 amendments) 20.6, the sublease shall be classified as an operating lease.听听

(b) otherwise, the sublease shall be classified by reference to the right-of-use asset arising from the head lease, rather than by reference to the underlying asset (for example, the item of property, plant or equipment that is the subject of the lease).鈥�听

The broad principles to follow when accounting for subleases under IFRS 16 and FRS 102 (2024 amendments) are as follows:听

Head lessor 鈥� The head lessor鈥檚 accounting is not affected if the intermediate party enters into听a sub-lease, unless听the original lease agreement between those parties is replaced.听

Ultimate lessee - 听recognises听a right-of-use asset and a lease liability as normal.听

Intermediate lessor 鈥� The head lease liability is unchanged, but the accounting for the right-of-use asset is dependant听on the classification of the sub-lease:听

  • Sublease is a finance lease: The intermediate party derecognises the right-of-use asset and recognises a lease receivable听

  • Sublease is an operating lease: The intermediate party continues to recognise the right-of-use asset, with revenue from the sub-lease recognised over the term of the sublease.听

听