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My answer: Clive has now the ability to direct Lifeson Co to use the asset as per its directions and substantial benefits of the asset will belong to Clive co.
Why Lifeson co should recognise a right of use of the asset?
The lessee( Lifeson) does not have have the right to direct the use of the asset and cannot obtain substantially all the economic benefits from use of the asset.
It’s because Clive owns the asset that Lifeson has a right-to-use asset. If you accept that Lifeson has a lease liability for 10 years (which you must – there is a 10-year lease), the other side of the entry is a right-to-use asset.
If the rights had not transferred to Clive (though in this case they had) there would be no sale and the transaction would be accounted for as a financial liability (i.e. a the “sale proceeds” would be a loan) and accounted for under IFRS 9.
Please refer to SBR notes if you need further reminder of accounting for sale and leaseback.
I am confused on this part:
Please correct me on the below.
IFRS 16: for a lease contract to exist, the lessee ( the user of the asset) need to have right to:
1) Obtain substantially all the economic benefits from use of the asset
2) direct use of the assetHere: Lifeson has sold the property to Clive and then lease it back for 10 years.
Lifeson will obtain ‘part’of the economic benefits from use of the asset. It does not say Lifeson can direct the use of the asset or (I assume that Clive will direct it).
So how can I recognise it as lease in the FS of Lifeson?
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