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hello Mike
a quick question please
what do we do when we have a sale and lease back and its a finance lease?
now i know the rules but i am not sure what we do when we have a deferred loss?
how to treat deferred loss? what is the double entry? i know when we have deferred gain then we hold that in liability but where to hold the deferred loss?
also if there is an early termination clause in the lease term with penalties then its a finance lease. is that right?
thanks
My initial thinking about this sale-and-lease-back scenario is that, if the fair value is lower than the carrying value, then the asset needs to be impaired at the first opportunity.
If the sale value is lower than the fair value, then that loss too should be expensed …
… unless the reason for the lower disposal proceeds is compensated by artificially low lease payments in which case the loss should be deferred and expensed over the period of the lease
As for the termination clause question – I’ve never given that any thought but both the old IAS 17 and the new IFRS 16 make reference to “non-cancellable periods” in the context of operating leases so I assume that penalty clauses / early termination situations can arise equally in operating leases as in finance leases
Does that help?
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