Net investment in a lease
Gross investment comprises the lease payments receivable by the lessor under a finance lease plus any unguaranteed residual value accruing to the lessor. The finance lessor recognises a receivable equal to the net investment and recognises finance income over the lease term to reflect a constant periodic return, subject to IFRS 16 requirements. This is not the lessee’s right-of-use asset.
Worked example
A lessor expects to receive a single $110,000 lease payment in one year and no residual value. If the rate implicit in the lease is 10%, the net investment at commencement is $100,000, before other relevant adjustments.
Common mistake
Calling the lessee’s undiscounted payments its net investment or omitting the discounting and relevant residual value.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | SBR | Direct | September 2026–June 2027 |