IFRS 16 makes significant changes to sale and leaseback accounting. A sale and leaseback transaction is one where an entity (the seller-lessee) transfers an asset to another entity (the buyer-lessor) for consideration and leases that asset back from the buyer-lessor.
A sale and leaseback transaction [pdf] is a popular way for entities to secure long-term financing from substantial property, plant and equipment assets such as land and buildings.
IAS 17 covered the accounting for a sale and leaseback transaction in considerable detail but only from the perspective of the seller-lessee.
As IFRS 16 has withdrawn the concepts of operating leases and finance leases from lessee accounting, the accounting requirements that the seller-lessee must apply to a sale and leaseback are more straight forward. In addition, IFRS 16 provides an overview of the accounting requirements for buyer-lessors too.
When a seller-lessee has undertaken a sale and lease back transaction with a buyer-lessor, both the seller-lessee and the buyer-lessor must first determine whether the transfer qualifies as a sale. This determination is based on the requirements for satisfying a performance obligation in IFRS 15 ‘Revenue from Contracts with Customers’.
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The accounting treatment will vary depending on whether or not the transfer qualifies as a sale.
The full insight provides an example and also further information on:
- when the transfer of the asset is a sale
- when the transfer of the asset is not a sale
- Sale and leaseback transactions when transitioning to IFRS 16.
We hope you find the information in this article helpful in giving you some detail into aspects of IFRS 16. If you would like to discuss any of the points raised, please speak to your usual Grant Thornton contact or your local member firm.