IFRS 16 Sale and Leaseback EXPLAINS that such transaction is accounted for as a sale of an underlying asset and a leaseback of that underlying asset only if the initial transaction QUALIFIES as a sale in accordance with IFRS 15, Revenue from Contracts with Customers.
In a sale and leaseback transaction, an entity (the seller-lessee) sells an asset to another entity (the buyer-lessor), which then leases the asset back to the seller-lessee.
Table of Contents
IFRS 16 Sale and Leaseback Accounting
| Accounting treatment of IFRS 16 Sale and Leaseback Transactions depends on whether the transfer of an underlying asset from seller-lessee to buyer-lessor is a sale under IFRS 15? |
How to CONCLUDE whether the transfer of an underlying asset from seller-lessee to buyer-lessor is a ‘sale’ under IFRS 15?
| ‘Evaluate the Leaseback Transaction from the Perspective of Buyer-Lessor’ |
| If the leaseback is ‘Finance Lease‘ from the perspective of buyer-lessor: – Transfer of an asset from seller-lessee to buyer-lessor is not a sale under IFRS 15. | If the leaseback is ‘Operating Lease’ from the perspective of the buyer-lessor: – Transfer of an asset from seller-lessee to buyer-lessor is a sale under IFRS 15. |
| Transfer to buyer-lessor is Not Sale | Transfer to buyer-lessor is Sale |
|---|---|
| Seller-Lessee: – Continue to recognize the underlying asset. – Recognize financial liability under IFRS 9 for any amount received from buyer-lessor. Buyer-Lessor: – Do not recognize the underlying asset. – Recognize financial asset under IFRS 9 for any amount paid to the seller-lessee. | Seller-Lessee: – De-recognize the underlying asset. – Apply the ‘Lessee Accounting Model’ to the leaseback. (Ref. Next Table) Buyer-Lessor: – Recognize the underlying asset. – Apply the ‘Lessor Accounting Model’ to the leaseback. |
1. Accounting Treatment for Seller-Lessee
[Transfer of Underlying Asset from Seller-Lessee to Buyer-Lessor is a Sale Under IFRS 15]
| Leaseback Accounted for Under IFRS 16 (a) Recognize lease liability at present value (PV) of lease payments (b) Recognize the right of use (ROU) asset as a proportion of the carrying amount of asset retained by seller-lessee: [ROU Asset = Carrying Amount of Asset * PV of Lease Payments/FV of Asset] (c) Recognize sale at fair value (d) Recognize gain/loss that relates to rights transferred to buyer-lessor [Gain/Loss = (FV-Carrying Amount of Asset) * (FV-PV of Lease Payment)/FV of Asset] If Sale Proceeds > Fair Value difference between the sale proceed and fair value is accounted for as additional financing provided by buyer-lessor to seller-lessee. If Sale Proceeds < Fair Value difference between the sale proceed and fair value is accounted for as prepayment of lease payments. | Leaseback Accounted for as: – Short Term Lease; OR – Low-Value Asset (a) Recognize any gain/loss as a difference between sale proceed and carrying amount of underlying asset. (b) Recognize lease payments as an expense on straight-line basis (or another systematic basis) over the lease term. |
Synopsis
IFRS 16 Sale and Leaseback Transaction DEPICTS regarding ‘Lease Transactions‘ and it replaced IAS 17, IFRIC 4, SIC-15 & SIC-27.
Chartered Accountant (Institute of Chartered Accountants of Pakistan)
Bachelor of Accounting Honours (Asia e University, Malaysia)