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Sale and Leaseback Query (Chapter 18 – page 87)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Sale and Leaseback Query (Chapter 18 – page 87)

  • This topic has 3 replies, 2 voices, and was last updated 3 weeks ago by Stephen Widberg.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • December 22, 2022 at 3:42 pm #675037
    sarah012
    Participant
    • Topics: 1
    • Replies: 1
    • ☆

    I don’t understand how the seller-lessee and buyer-lessor points are split on the page. Can you please explain these in more detail, both if transfer of asset is a sale and if it isn’t?

    Thank you!

    December 23, 2022 at 8:30 am #675052
    Stephen Widberg
    Keymaster
    • Topics: 12
    • Replies: 2841
    • ☆☆☆☆☆

    SCENARIO 1
    LEASE TERM = ASSET LIFE
    THEREFORE NOT A SALE
    IN SUBSTANCE IT IS A LOAN SECURED ON THE PPE

    SO SELLER HAS FINANCIAL LIABLITY AND BUYER HAS A FINANCIAL ASSET.
    SELLER KEEPS PPE ON SFP.

    SCENARIO 2
    LEASE TERM LESS THAN ASSET LIFE
    THIS IS A SALE AND LEASEBACK

    SELLER DERECOGNISES PPE AND RECOGNISES RIGHT OF USE ASSET INSTEAD. SELLER ALSO RECOGNISES LEASE LIABILITY.

    BUYER WILL EITHER TREAT LEASE AS FINANCE OR OPERATING LEASE, DEPENDING ON TERM OF LEASE COMPARED TO ASSET LIFE.

    🙂

    January 6, 2023 at 12:28 pm #675435
    sarah012
    Participant
    • Topics: 1
    • Replies: 1
    • ☆

    Hi Stephen,

    Happy new year and thank you for your answer!

    Sorry to go back to basics here but could you please explain the difference between an asset and a financial asset? As in scenario 1, buyer is not recognising an asset but is recognisinig a financial asset?

    Otherwise I have re-watched the lecture with you response in mind and I’ve understood the concept 🙂

    January 7, 2023 at 7:40 pm #675477
    Stephen Widberg
    Keymaster
    • Topics: 12
    • Replies: 2841
    • ☆☆☆☆☆

    Assets = INTANGIBLES + PPE + INVESTMENT PROPERTY + INVENTORY + FINANCIAL ASSETS

    Financial assets = EQUITY INVESTMENTS + ANY CONTRACTUAL RIGHT TO RECEIVE CASH

    In our note ‘asset’ is referring to the physical asset such as PPE. ‘Financial asset’ is referring to the lease receivable’. I will try and clarify this in the next edition.

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