BLM16010 - Lease accounting: leasebacks and sub-leases: sale and finance leaseback under FRS 102

FRS 102 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 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

Further details of the accounting for a sale and finance leaseback are at BLM35000 onwards.