BLM17045 - IFRS16 accounting: Sale and leaseback

The accounting for a sale and leaseback will depend on the assessment of the transactions under IFRS 15, and whether a performance obligation has been satisfied.

Transfer of the asset is a sale

The seller-lessee will derecognise the underlying asset and use the lessee accounting model to the leaseback (recognising a right of use asset), and continue to measure the retained portion of the asset at the previous carrying amount. A gain or loss may be recognised on the portion of the rights transferred.

The buyer-lessor shall recognise the asset using the applicable accounting standards, and apply the lessor accounting requirements.

If the transaction is not at market rates, then:

• any below-market terms shall be accounted for as a prepayment of lease payments; and

• any above-market terms shall be accounted for as additional financing provided by the buyer-lessor to the seller-lessee.

Transfer of the asset is not a saleThe seller-lessee will continue to recognise the transferred asset and shall recognise a financial liability equal to the transfer proceeds.

The buyer-lessor shall not recognise the transferred asset and shall recognise a financial asset equal to the transfer proceeds.

A lease and leaseback should be critically reviewed as they can commonly be tax motivated. You should carefully review and such lease and leaseback in line with BLM16000