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    Sales Leaseback (Lessor)

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    Jb De Guzman
    This document discusses accounting for sales leaseback transactions under IFRS 16. It provides 3 scenarios for sales leaseback transactions: 1) When the sales price equals fair value, 2) When sales price is greater than fair value, and 3) When sales price is less than fair value. For each scenario, it outlines the journal entries required by the lessee-seller, including calculating the lease liability, right of use asset, gain/loss on sale, and subsequent interest and depreciation expense entries.

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    Sales Leaseback (Lessor)

    Uploaded by

    Jb De Guzman
    74 views3 pages
    This document discusses accounting for sales leaseback transactions under IFRS 16. It provides 3 scenarios for sales leaseback transactions: 1) When the sales price equals fair value, 2) When sales price is greater than fair value, and 3) When sales price is less than fair value. For each scenario, it outlines the journal entries required by the lessee-seller, including calculating the lease liability, right of use asset, gain/loss on sale, and subsequent interest and depreciation expense entries.

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    This document discusses accounting for sales leaseback transactions under IFRS 16. It provides 3 scenarios for sales leaseback transactions: 1) When the sales price equals fair value, 2) When sales price is greater than fair value, and 3) When sales price is less than fair value. For each scenario, it outlines the journal entries required by the lessee-seller, including calculating the lease liability, right of use asset, gain/loss on sale, and subsequent interest and depreciation expense entries.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    74 views3 pages

    Sales Leaseback (Lessor)

    Uploaded by

    Jb De Guzman
    This document discusses accounting for sales leaseback transactions under IFRS 16. It provides 3 scenarios for sales leaseback transactions: 1) When the sales price equals fair value, 2) When sales price is greater than fair value, and 3) When sales price is less than fair value. For each scenario, it outlines the journal entries required by the lessee-seller, including calculating the lease liability, right of use asset, gain/loss on sale, and subsequent interest and depreciation expense entries.

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    Sales Leaseback (Lessor)

    Intermediate Accounting II: IFRS 16-Leases

    SALES LEASEBACK IS EITHER;


    A. Operating Lease
    B. Finance Lease

    A. Operating Lease (Sales-leaseback).


    Please see VALIX 2019 Sales Leaseback discussions.

    B. Finance Lease (Sales -Leaseback)


    Scenarios 1. Sales Price equal to fair Value
    Scenario 2. Sales price is greater than fair value
    Scenario 3. Sales price is less than fair value

    Scenario 1: Sales Price equal to fair Value


    On January 1, 2020, an entity sold an asset-equipment with remaining life of 10 years and IMMEDIATELY
    LEASED IT BACK for 4 years. Additional data are as follows:

    • Sales price is 6M
    • Fair value is 6M
    • Carrying value of asset4.5M
    • Annual rental is 800,000 payable at the end of each year.
    • PVF at 10% is 3.170

    Book of Lessee-Seller:
    Lease liability at Jan 1, 2020
    800,000* 3.170=2,536,000

    Cost of Right of Use Asset


    4.5M divided by 6M* 2,536,000=1,902,000

    TOTAL gain
    Sales/FV 6M less CV of 4.5M=1,500,000

    Rights transferred to buyer-Lessor


    6M less 2,536,000=3,464,000

    Gain to be recognized in IS
    (3,464,000 divided by 6M)* 1.5M=866,000

    Journal Entry of Lessee-Seller:


    Dr. Right of Use asset 1,902,000
    Dr. Cash 6,000,000
    Cr. Lease Liability 2,536,000
    Cr. Gain on sale 866,000
    Cr. Equipment 4,500,000
    Scenario 2: (Sales Leaseback) Sales Price is Greater than the fair Value
    On January 1, 2020, an entity sold an asset-equipment with remaining life of 10 years and IMMEDIATELY
    LEASED IT BACK for 5 years. Additional data are as follows:
    · Sales price is 20M
    · Fair value is 18M
    · Carrying value of asset 10.8M
    · Annual rental is 1,500,000 payable at the end of each year; Lease term is 5 years
    · PVF at 12% is 3.60

    Book of Lessee-Seller:
    Lease liability at Jan 1, 2020
    1,500,000* 3.60= 5,400,000

    Adjusted FV of Lease payments


    5,400,000 – (20M sales price-18M FV)=3,400,000

    Cost of Right of Use Asset


    10.8M divided by 18M* 3,400,000= 2,040,000

    TOTAL gain
    Fair value 18M less CV of 10.8M=7,200,000

    Rights transferred to buyer-Lessor


    18M less 3,400,000=14,600,000

    Gain to be recognized in IS
    (14,600,000 divided by 18M)* 7.2M=5,840,000

    Interest expense-1st year


    5.4M * 12%=648,000

    Depreciation expense per year


    2,040,000/ 5=408,000

    Journal Entry of Lessee-Seller:


    Dr. Right of Use asset 2,040,000
    Dr. Cash 20,000,000
    Cr. Lease Liability 5,400,000
    Cr. Gain on sale 5,840,000
    Cr. Equipment 10,800,000

    Dr. Interest expense 648,000


    Dr. Lease liability 852,000
    Cr. Cash 1,500,000

    Dr. Depreciation expense 408,000


    Cr. Accumulated depreciation 408,000
    Scenario 3: Sales Price is Less than the fair Value
    On January 1, 2020, an entity sold an asset-equipment with remaining life of 10 years and IMMEDIATELY
    LEASED IT BACK for 5 years. Additional data are as follows:
    · Sales price is 5M
    · Fair value is 6M
    · Carrying value of asset 4.8M
    · Annual rental is 900,000 payable at the end of each year; Lease term is 5 years
    · PVF at 8% is 3.99

    Book of Lessee-Seller:
    Lease liability at Jan 1, 2020
    900,000* 3.99= 3,591,000

    Adjusted FV of Lease payments


    3,591,000 – (5M sales price-6M FV)=4,591,000

    Cost of Right of Use Asset


    4.8M divided by 6M* 4,591,000=3,672,800

    TOTAL gain
    Fair value 6M less CV of 4.8M= 1,200,000

    Rights transferred to buyer-Lessor


    6M less 4,591,000=1,409,000

    Gain to be recognized in IS
    (1,409,000 divided by 6M)* 1.2M=281,800

    Interest expense-1st year


    3,591,000* 8%=287,280

    Depreciation expense per year


    3,672,800/ 5=734,560

    Journal Entry of Lessee-Seller:


    Dr. Right of Use asset 3,672,800
    Dr. Cash 5,000,000
    Cr. Lease Liability 3,591,000
    Cr. Gain on sale 281,800
    Cr. Equipment 4,800,000

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