BLM17045 - IFRS16 accounting: Sale and leaseback
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.
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