BLM16005 - Lease accounting: leasebacks and sub-leases: introduction to sales and leasebacks under FRS 102
This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.
This section is applicable to entities applying FRS 102 pre 2024 amendments or FRS 105, and for lessors only under IFRS 16 and FRS 102 (2024 amendments).
See BLM17000 for lessee accounting under the on-balance sheet model under IFRS 16 and FRS 102 (2024 amendments).
Accounting for Sale and leaseback under the on-balance sheet model under IFRS 16 and FRS 102 (2024 amendments) is covered at BLM17045.
FRS 102 (pre 2024 amendments) 20.32 states ‘the lease payment and the sale price are usually interdependent because they are negotiated as a package. The accounting treatment of a sale and leaseback transaction depends on the type of lease’. For accounting purposes under FRS 102 (pre 2024 amendments) the leaseback may be classified as either a finance lease or an operating lease.
FRS 102 (pre 2024 amendments) 20.33 states that ‘if a sale and leaseback transaction results in a finance lease, the seller-lessee shall not recognise immediately, as income, any excess of sales proceeds over the carrying amount. Instead the seller-lessee shall defer such excess and amortise it over the lease term’.
The accounting method under FRS 102 (pre 2024 amendments) treats the sale and finance leaseback as, in substance, a transaction whereby the lessor provides finance to the lessee with the asset as security. It is therefore not appropriate to recognise immediately any profit on sale as though the asset has been disposed of.
Guidance on the tax consequences of sale and leasebacks is at BLM35000 onwards. This also includes an example of the accounting.