UK How to account for solar panel lease based on use, under FRS102?

[Joseph Sargeant]

Hi,

My company currently prepares its accounts under FRS102, and has just had £3M of solar panels. This purchase was all paid via finance/lease here are the main points from the lease agreement:

• Lease has a term of 20 years;
• Solar panels become the company's after the 20 years following a nominal payment of a £1;
• Finance/lease company take all responsibility for roof repairs & solar panel repairs until the end of the lease;
• No repayments over the lease term. However the company will purchase electricity generated from the solar panels from the lease/finance company at a reduced rate (e.g 5p per KWH), if the company's usage is higher than the electricity generated then the excess will be purchased from the grid at a normal rate. If the electricity generated from the solar panels exceeds the amount needed for the company then the finance/lease company will sell the electricity back to the grid.

I know that the panels will need capitalising and a liability needs recognising because the company will own the asset at the end of the lease term despite the fact that the company has no risk for the repairs during the lease term. My questions are:

• How would I calculate the NPV of this acquisition as the repayments are variable?
• How would I account for the repayments in each year, i.e how much should go to liability and how much should go to interest?
• Do I need to recognise anything because no repairs are needed within the 20 year period?

Thanks for your help.

 

[Fidget]

The hallmarks of a finance lease are there, but this sounds like an operating lease to me because you're basically renting the solar panels by paying a fee over to the supplier for usage. So in essence, instead of paying a normal supplier of electricity, you're paying a third party.

 

[Joseph Sargeant]

Thanks for your reply Fidget, I actually recently did analysis to the indicators in FRS102. Whilst some did point to a finance lease, the major indicators such as risks & rewards did indicate an operating lease.