• Thomas Tsang

Is hire purchase a finance lease

FRS116 requires finance lease under FRS17 to classify as Right-of-use assets and lease liability on adoption from 1 Jan 2019.

The main characteristic of Finance lease is the lessor owned the assets. There is a confusion that hire purchase also considered as finance lease in the past in some instances. But we have to be cleared that assets under hire purchase is not finance lease if the term is such that the company owned the assets. And the asset is a being financed under hire purchase. The cost of asset was paid and recognised under FRS16 PPE and the liability is recorded as financial liability at amotised cost. S They are not accounted for as finance lease under FRS17.

in conclude, for assets acquired under hire purchase is not finance lease and have no impact on FRS116. This should be the case for motor vehicle under hire purchase.

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