Sale and lease back

In this lesson

1. 0:00 Sale and leaseback fundamentals
2. 0:19 Determining if transaction qualifies as sale
3. 0:41 Accounting when sale criteria are met
4. 1:29 Accounting when sale criteria not met
5. 1:53 Adjusting for non-market value transactions
6. 3:15 Worked example: Green and Blue Company
7. 6:10 Right of use asset depreciation and financing

About this lesson

You'll discover how to determine whether the transaction qualifies as a sale, how to recognise the right-of-use asset and any gain or loss on the seller's side, and how to handle transactions that aren't at fair value. This is essential for Financial Reporting, Strategic Business Reporting, and Advanced Financial Reporting papers. The video walks through the key accounting treatment for both parties. For the seller, if the transaction satisfies IFRS 15 criteria, you recognise a right-of-use asset based on the proportion of lease payments relative to fair value, plus any prepayment adjustment if the sale proceeds are below fair value. You'll also recognise a gain or loss on the rights transferred, calculated proportionally. For the buyer, the purchase is treated as a normal acquisition, with the lease accounted for under IFRS 16 as a finance lease. A critical complication arises when sale and leaseback transactions aren't at market rates. If lease payments are below market, the difference is treated as a prepayment added to the right-of-use asset. If above market, it's treated as additional financing. The video includes a worked example showing how to calculate the initial right-of-use asset, recognise the appropriate gain on sale, and then depreciate the asset and account for the finance cost over the lease term, just like a standard finance lease.

Duration: 7m