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Hi Mike,
My query relates to the difference in treatment between a sale and leaseback (where a finance lease is created)and a sale and repurchase agreement
Why do we recognise a sale (with profit recognised over the life of the lease) in the case of a sale and leaseback (finance leaseback) but in the context of a sale and repurchase, no sale is recognised
Thanks
Liam
Hi Liam
Doesn’t it all depend on what the values are for “fair value”, “carrying value” and “sale value”?
Hi Mike,
Thanks for reply
So a difference between Sale Value and Carrying Value in the context of a sale and leaseback gives rise to a difference on disposal of the asset which is treated as a deferred gain
If i am interpreting IAS 17 correctly, a sale and leaseback is a financing transaction and so any “profit” on disposal is deferred and amortised over the lease term – in that a “sale” is not truly recognised by IAS 17 – in the sense of not recognising the gain “immediately” – is this a correct interpretation?? Below is the wording from IAS 17 which i am basing my interpretation on
– 60 If the leaseback is a finance lease, the transaction is a means whereby the lessor provides finance to the lessee, with the asset as security. For this reason it is not appropriate to regard an excess of sales proceeds over the carrying amount as income. Such excess is deferred and amortised over the lease term.
Thanks
Liam
“If i am interpreting IAS 17 correctly, a sale and leaseback is a financing transaction and so any “profit” on disposal is deferred and amortised over the lease term – in that a “sale” is not truly recognised by IAS 17 – in the sense of not recognising the gain “immediately” – is this a correct interpretation?? Below is the wording from IAS 17 which i am basing my interpretation on”
Am I not correct in thinking that, if fair value is in excess of carrying value at the date of “sale” then that excess IS recognised immediately? Then sale value compared with fair value – if it results in a “profit” is deferred and spread
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