https://www.monitordaily.

com/article-posts/sales-leasebacks-devil-details/
https://www.grantthornton.ie/insights/publications/ifrs-16-sale-and-leaseback-accounting/
the seller-lessee continues to recognise the asset on its balance sheet as there is no sale. The seller-lessee
accounts for proceeds from the sale and leaseback as a financial liability in accordance with IFRS 9. This
arrangement is similar to a loan secured over the underlying asset – in other words a financing transaction
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If the transfer qualifies as a sale and the transaction is on market terms the seller-lessee effectively splits the
previous carrying amount of the underlying asset into:
• a right-of-use asset arising from the leaseback, and
• the rights in the underlying asset retained by the buyer-lessor at the end of the leaseback.
The seller-lessee recognises a portion of the total gain or loss on the sale. The amount recognised is calculated
by splitting the total gain or loss into:
• an unrecognised amount relating to the rights retained by the seller-lessee, and
• a recognised amount relating to the buyer-lessor’s rights in the underlying asset at the end of the leaseback.
The leaseback itself is then accounted for under the lessee accounting model.
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In contrast however some transactions of assets other than real estate or equipment integral to real estate will
be considered a FAILED sale and leaseback under ASC 842. As mentioned above, those sales and leasebacks
which include a fixed price purchase option will no longer be considered a ‘successful’ sale and leaseback.
A failed sale-leaseback occurs when
leaseback is classified as a finance lease, or
a leaseback includes any repurchase option and the asset is specialized (the FASB has indicated that real estate
is almost always considered specialized), or
a leaseback includes a repurchase option that is at other than the asset’s fair value determined “on the date
the option is exercised”.
This last item means that any sale and leaseback that includes a fixed price purchase option at the end will
remain on the lessee’s balance sheet at its full value and classified as a fixed asset rather than as a Right of Use
Asset (ROUA). Even though an asset may have been legally sold, a sale is not reported and the asset is not
removed from the lessee’s balance sheet if those conditions exist!
Note also that additional nuances too numerous to address here exist in the sale-leaseback accounting world.
The accounting treatments are explained further below.
IFRS 16 Considerations
IFRS 16 on the other hand has a slightly different set of standards;
if the seller-lessee has a “substantive repurchase option” than no sale has occurred and
any gain recognition is limited to the amount of the gain that relates to the buyer-lessors residual interest in
the underlying asset at the end of the leaseback.
In essence, IFRS 16 now also prevents any de-recognition of the asset from the lessee’s balance sheet if any
purchase option is provided, other than a purchase option the value of which is determined at the time of the
exercise. Ironically IFRS 16 now requires a limitation on the amount of the gain that can be recognized in a
similar fashion to what was permitted under ASC 840, namely the gain can only be recognized to the extent it
exceeds the present value of the leaseback.