⚠ FRS 105 entities only — do not use this calculator. The amended Section 20 lease rules apply to FRS 102 reporters only. Companies reporting under FRS 105 (micro-entities) continue to use the old finance lease / operating lease distinction and are exempt from the new ROU asset model. Using this calculator for an FRS 105 client will produce incorrect output.
Lease details
The transition date is the first day of the first accounting period subject to the new FRS 102 Section 20 (e.g. 1 April 2026 for a March year-end). The lease liability and ROU asset are measured from this date under the modified retrospective approach.
Lease term judgement
Q1 — Does the lease have any extension, renewal, or secondary period options?
Q2 — Is the lessee reasonably certain to exercise this option at the transition / commencement date?
Reasonably certain is a high threshold — substantially more than merely likely. Consider: economic penalty for not renewing, significant leasehold improvements, business dependency on the asset, contractual terms, and management's stated intention.
Q3 — Why is the lessee not reasonably certain to exercise?
Set the review date approximately 6 months before the minimum term end. At that point, reassess whether continuation is now reasonably certain. If yes, remeasure the lease liability using the Remeasurement section below.
Include the secondary period payments in the payment schedule below. The full lease term including the extension is used for measurement.
✓ No extension options — lease term is the non-cancellable period only. Include only the minimum term payments in the schedule below.
Discount rate
Use the rate implicit in the lease if it can be readily determined. To calculate it you need the fair value of the asset at inception. If not determinable, use the obtainable borrowing rate (OBR) — the rate the lessee would pay to borrow an amount equal to the total undiscounted lease payments over a similar term.
OBR guidance & help
OBR Guidance Note — CPS-FRS102-OBR-01
Full internal guidance on determining and evidencing the obtainable borrowing rate under FRS 102 s20 (2026 amendments). Includes rate hierarchy, what HMRC rates cannot be used, file note template, and the BPCE worked example.
OBR determination — 3-step guided workflow
Step 1 — Look up the BoE SME rate
Open the Bank of England Money and Credit release for the month of the lease commencement date (not the transition date). Find the figure labelled "effective interest rate on new loans to SMEs" and enter it below.
Quick reference — BoE SME new loan rates (source: BoE Money and Credit):
Jan 2025: 7.00% | May 2025: 6.54% | Jul 2025: 6.41% | Sep 2025: 6.18% | Oct 2025: 6.26% | Nov 2025: 6.18% These are market averages for all SME lending — apply a spread for vehicle HP (see Step 2).
Step 2 — Apply a spread for vehicle HP
The BoE rate covers all SME lending. Commercial vehicle HP typically runs 1–2% above the general SME average due to the asset-specific nature of the finance. Select a spread and document your reasoning below.
OBR selected
BoE base
Spread
Step 3 — Generate & download file note
Complete the fields below then click Download file note PDF. Save it to the client working papers folder. This is your audit evidence — complete it before running the main calculation.
Rate amendment log (complete only if rate has been revised)
Rate change policy: A rate change is only valid where (a) transition journals have NOT yet been posted, or (b) the original rate contained a material error at the date it was set. Market rate movements after the transition date do not justify a rate change. Director preference for a different balance sheet outcome is not a valid basis for amendment — document any such request and the decision to decline it.
Rate lock — transition journal posted
⚠ Rate is locked. The transition journal has been posted. The OBR of % is fixed and cannot be changed unless a material error existed at the transition date or the lease is formally modified. Any director request to change the rate after posting must be documented, assessed against these criteria, and approved by the MLRO before any correcting entry is made.
Enter all remaining payments from the transition date (not from commencement). Use separate rows for different payment amounts or one-off payments such as balloons.
Initial direct costs at commencement
Under FRS 102 s20, initial direct costs incurred by the lessee at commencement are added to the ROU asset. Enter the net amount — VAT is recoverable separately. Only include costs paid at or before lease commencement that would not have been incurred but for the lease.
Accounting period
Xero account codes
Pre-filled with Crown Payroll standard chart of accounts. Adjust if different for this client.
Lease modification / remeasurement
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Use this section only where the lease has been formally modified — i.e. the scope or term has changed by agreement with the lessor — or where a material error existed in the original OBR at the transition date. Market rate movements and director preference are not valid triggers for remeasurement.
Before proceeding: confirm which trigger applies. (1) Lease modification — scope/term changed by agreement, new rate is current OBR at modification date. (2) Material error — original rate was wrong at transition date, correcting entry required under FRS 102 s10 (prior period errors). These produce different journals. If neither applies, close this panel and do not remeasure.
Revised payment stream from remeasurement date
Enter only payments due after the remeasurement date at the revised terms.
Enter lease details and a discount rate, then click Calculate schedule to generate the ROU asset, lease liability, and amortisation schedule.