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HMRC internal manual

Business Leasing Manual

Lease accounting: leasebacks and sub-leases: sale and finance leaseback under IFRS

IAS 17 (paragraph 60) states that if the leaseback is a finance lease, the transaction is a means whereby the lessor provides finance to the lessee, with the asset as security.

The standard states that for this reason it is not appropriate for the lessee to regard an excess of sales proceeds over the carrying amount as income. Instead, such excess is deferred and amortised over the lease term. This is equivalent to the first method in SSAP21.

This means that the carrying balance of the asset is rebased to the higher value (and depreciated in the normal manner) and a corresponding credit is raised which represents the deferred income to be recognised over the lease term.

The lease is treated in the same manner as any other finance lease by the lessor if it is classified as a finance lease.