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Hi sir,
In the question,lifeson co will lease the property back from clive co.This means the rewards is not passed to clive co.therefore, no sales and property should not be derecoginsed.
But In answer paper it is stated that this is a sales and property must be derecoginsed and profit and loss on disposal should be recognised.
Please explain.
Thank you..:)
The whole point of a “sale and leaseback” arrangement is that the “seller” retains the use of the asset – so this ALONE cannot mean that rewards have not passed to the “buyer”.
IF the “sale” is a sale per IFRS 15 – a gain will be recognised on the sale and the leaseback gives rise to a right-of-use asset.
IF the “sale” is NOT a sale – the “proceeds” are a loan secured on the asset (IFRS 9) – there will be no derecognition of the asset (so no gain).
Per the Q:
“Clive Co has assessed the remaining life of the property to be in excess of 50 years ……. Lifeson [“SELLER”] Co will lease the property back from Clive Co [“PURCHASER”] for a period of ten years …. ”
So Lifeson HAS made a sale and transferred control to Clive – e.g. because Lifeson has only the right to use it for 10 years – but not sell it – Clive will have 40+ years use of it.
Something else that suggests that it is a sale (but again, on its own is not proof) is that the transaction is at the property’s fair value (whereas a loan secured on an asset would generally be less).
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