BLM17045 | Lease accounting under IFRS 16 and FRS 102 (2024 amendments): sale and leaseback

This manual is being updated to reflect FRS 102 (2024 amendments). For guidance on the tax treatment of accounts prepared under IFRS 16 or the revised FRS 102, please refer to pages within the BLM50000 chapter.

The accounting for a sale and leaseback will depend on the assessment of the transactions under IFRS 15 or FRS 102 (2024 amendments) Section 23 as applicable, and whether a performance obligation has been satisfied. Further detail on IFRS 15 and FRS 102 Section 23 is shown in the Business Income Manual (BIM31115).

Transfer of the asset is a sale (IFRS 16.100 – 102; FRS 102 (2024 amendments) 20.123 - 125)

The seller-lessee will derecognise the underlying asset and use the lessee accounting model for the leaseback (recognising a right-of-use asset) and continue to measure the retained portion of the asset at the previous carrying amount. A gain or loss may be recognised on the portion of the rights transferred.

The buyer-lessor shall recognise the asset using the applicable accounting standards and apply the lessor accounting requirements.

If the transaction is not at fair value (market rates), then:

• any below-market terms shall be accounted for as a prepayment of lease payments; and

• any above-market terms shall be accounted for as additional financing provided by the buyer-lessor to the seller-lessee.

Transfer of the asset is not a sale (IFRS 16.103; FRS 102 (2024 amendments) 20.126)

The seller-lessee will continue to recognise the transferred asset and shall recognise a financial liability equal to the transfer proceeds.

The buyer-lessor shall not recognise the transferred asset and shall recognise a financial asset equal to the transfer proceeds.

A lease and leaseback should be critically reviewed as they can commonly be tax motivated. You should carefully review any such lease and leaseback in line with BLM16000.

Guidance on the tax consequences of sale and leasebacks is at BLM35000 onwards.