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Hello All,
On lease accounting IAS 17, when you have a Sale and Finance leaseback what are the entries?Do you really need to derecognise the asset and recognise the asset again with the amount received from sale or
Treat the amount received from sale as Loan there by debiting Cash/Bank and crediting Liability account and leave the asset in our books at its carrying value as we still maintain control over it.Thanks.
Later of the two as we adopt Substance over Form.
We have not sold the asset, we have used this as capital to raise finance, we would recognise the Finance Lease and a Financial Liability.
We would record the monies received:
Dr Cash Cr Finance Lease LiabilityThe asset is restated to its FV (the amount of the borrowed) the difference between FV and book value is recorded as
DR NCA (PPE) Cr Deferred incomeIt is then amortised over the useful life of the asset.
Thanks for the reply.
What about the issue of Sale and operating lease back at below fair value and above fair value, where the book value is also given. How do we treat those kind of transactions.
Would you enter into a Sale & Leaseback under Operating?
The whole purpose of Sale & Leaseback is to raise finance using assets as collateral.
An operating lease is a short term lease, ie it’s only for a proportion of the ecenomic useful life of the asset.
Do you have an example of the question you are trying to answer?
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