FRS 102 · Amended 2026 · Transition
FRS 102 transition calculator
You have an operating lease that has been running for years. On the first day of your 2026 period it has to appear on the balance sheet. This works out the liability, the asset, the journal and whether reserves take a hit.
Check the exemptions first. A lease of 12 months or less with no purchase option, or a lease of a low-value asset, can stay off the balance sheet and continue to be expensed straight-line. There is an exemption checker at the bottom of this page — it takes ten seconds and can save you the entire exercise.
At the date of initial application
Transition journal
Lease liability — remaining term
One lease took you two minutes
Now do the other thirty-nine, and evidence every judgement
Transition is a one-off exercise you cannot afford to get wrong, across every lease you hold, with an auditor reading over your shoulder. AuditLease imports the register in bulk, records the discount rate and term judgement per lease, locks an immutable audit trail, and produces the disclosure note.
How transition works
The amendments apply to accounting periods beginning on or after 1 January 2026. Under the modified retrospective approach you do not restate the comparative year. Instead you draw a line at the date of initial application — the first day of that first period — and bring every former operating lease onto the balance sheet as at that date.
The liability
Take every lease payment still to be made from the date of initial application onwards and discount it at your incremental or obtainable borrowing rate at that date. Not the rate that would have applied when the lease started years ago, but today's rate. Payments already made are history and never enter the calculation. Each remaining payment is discounted from its actual due date back to the date of initial application, counting actual days over a 365.25-day year, which on the effective annual basis is the same convention the AuditLease product uses.
One point of detail this calculator handles explicitly: a rent falling due on the date of initial application has not yet been paid when the opening balance sheet is struck, so it belongs in the liability, undiscounted. That differs from measuring a brand-new lease, where a payment made on the commencement date is excluded from the liability and capitalised into the asset instead. Applying the wrong rule understates the opening liability by a full period's rent.
The asset, and what that does to reserves
FRS 102 measures the asset on one basis: set the right-of-use asset equal to the liability, then adjust for any prepaid or accrued lease payments already on the balance sheet. Absent impairment, opening reserves are untouched. This is the basis FRS 102 requires, and it is the only one this calculator uses.
The rent-free accrual nobody remembers
If you straight-lined a rent-free period under the old rules, there is an accrual sitting on your balance sheet. On transition it is deducted in measuring the right-of-use asset, reducing it. A prepayment does the reverse. Both are taken into the asset measurement without touching reserves, but leaving them on the balance sheet after transition double-counts.
Exemption checker
Common questions
What exactly is the date of initial application?
The first day of your first accounting period beginning on or after 1 January 2026. December year end: 1 January 2026. March year end: 1 April 2026. September year end: 1 October 2026.
Do I restate last year's comparatives?
Not under the modified retrospective approach, which is why almost everyone uses it. The cumulative effect is dealt with at the date of initial application and the prior year is left alone.
Which discount rate: then or now?
Now. The incremental or obtainable borrowing rate at the date of initial application (paragraph 1.51(a)), chosen lease by lease.
Does transition hit opening reserves?
Under FRS 102 paragraph 1.51(b) the right-of-use asset is set equal to the lease liability, adjusted for any prepaid or accrued lease payments recognised in the statement of financial position immediately before the date of initial application. That is the only basis FRS 102 provides, and the only one this calculator uses. Absent impairment, this measurement does not itself move opening reserves.
What happens to the rent-free accrual on my balance sheet?
An accrual built up by straight-lining a rent-free period is deducted in measuring the right-of-use asset on transition, reducing it. A prepayment works the other way and increases the asset (paragraph 1.51(b)). Either way the asset is measured on that one basis, so the adjustment does not by itself move opening reserves.
Will this breach my banking covenants?
It might, and it is worth modelling before the auditors raise it. Gross assets and gross liabilities both rise, gearing worsens, and rent moves out of operating costs into depreciation and interest, which improves EBITDA. Whether that helps or hurts depends entirely on how each covenant is drafted, and whether it is on a frozen-GAAP basis. Talk to the bank early.
Can I trust these numbers?
The arithmetic is covered by a test suite that includes proof that the transition journal balances across nine different fact patterns and that every schedule amortises to exactly zero. The judgements you feed in are yours.