Sale And Leaseback Accounting

Sale and leaseback transactions enable seller lessees to free up the funds associated with ownership of an asset while still being able to utilise that asset.

Sale and leaseback accounting. Ias 17 covered the accounting for a sale and leaseback transaction in considerable detail but only from the perspective of the seller lessee. Accounting for sale and leaseback transactions has become more complex under ifrs 16. The new lease accounting standards asc 842 and ifrs 16 modify the accounting considerations regarding whether the sale leaseback transaction is a bona fide sale or a financing and in certain cases will affect the pattern of recognizing the gain or loss on a qualified sale leaseback. Sale and leaseback transactions have long been popular because they present benefits to both seller lessees and buyer lessors the accounting for such transactions has changed significantly though with fasb s issuance of new standards for revenue recognition and lease accounting in recent years.

Slb transactions also fail if the seller lessee obtains control of the lease items or gives guarantees for their value in the lease back phase of transaction. Sale and leaseback accounting. Because ifrs 16 requires lessees to recognise most leases on the balance sheet i e all leases except for leases of low value assets and short term leases depending on the lessee s accounting policy election sale and leaseback transactions no longer provide lessees with a source of off balance sheet financing. A sale and leaseback transaction occurs when the seller transfers an asset to the buyer and then leases the asset from the buyer.

If the contract between the buyer lessor and seller lessee includes a repurchase option the agreement does not qualify for sale leaseback accounting under asc 842 unless. Download ifrs 16 sale and leaseback accounting 77 kb the fukk insight provides an example and also further information on. As ifrs 16 has withdrawn the concepts of operating leases and finance leases from lessee accounting the accounting requirements that the seller lessee must apply to a sale and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. If control of an underlying asset is transferred to a seller lessee in the leaseback phase of transaction.

Fasb s new lease accounting standard has made it less challenging to determine whether control. Therefore if a leaseback results in a lease that would be classified as a sales type lease or finance lease the leaseback would not qualify for sale leaseback accounting under asc 842. This arrangement most commonly occurs when the seller needs the funds associated with the asset being sold. When the transfer of the asset is not a sale.

For that reason sale and leaseback transactions are common in a number of industries. The accounting treatment will vary depending on whether or not the transfer qualifies as a sale.