BLM16020 - Lease accounting: leasebacks and sub-leases: sale and operating leaseback 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.
Where the leaseback is an operating lease, the seller-lessee has disposed of substantially all the risks and rewards of ownership of the asset in the sale and so has realised a profit or loss on the disposal. Therefore, both the sale and the lease are usually recognised as such. However, the situation can be complicated if the sale is other than at fair value. FRS 102 (pre 2024 amendments) 20.34 outlines the accounting treatment for the different scenarios:
Sale at fair value
Where the sale is at fair value any profit or loss should be recognised immediately.
Sale at above fair value
If the sale price is above fair value, the seller-lessee shall defer the excess over fair value and amortise it over the period for which the asset is expected to be used.
Sale at below fair value
If the sale price is below fair value, the seller-lessee shall recognise any profit or loss immediately unless the loss is compensated for by future lease payments at below market price. In that case the seller-lessee shall defer and amortise such loss in proportion to the lease payments over the period for which the asset is expected to be used.
Guidance on the tax consequences of sale and leasebacks is at BLM35000 onwards.