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 [ 77 kb ] 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As IFRS 16 has withdrawn the concepts of operating leases and finance leases from lessee accounting, the accounting requirements that the seller-lessee must apply to a sale and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’.
The accounting treatment will vary depending on whether or not the transfer qualifies as a sale.
Download the full insight into IFRS 16 [ 77 kb ] for 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