IFRS 16 — Sale and leaseback with variable payments

Date recorded:

Agenda Paper 5


The Committee received a submission about a sale and leaseback transaction with variable payments. In the fact pattern described, the entity (seller-lessee) enters into a sale and leaseback transaction whereby it transfers the asset to another entity (buyer-lessor) and lease back the asset for ten years with variable lease payments based on a percentage of the seller-lessee's revenue derived from that asset. The transfer satisfies requirements of IFRS 15 to be accounted for as a sale of an asset. The submitter asks how the seller-lessee measures the right-of-use asset arising from the leaseback, whether it is (i) zero because of variable lease payments, based on measurement requirements of IFRS 16:24, or (ii) a proportion of the asset's previous carrying amount, based on requirements in IFRS 16:100(a)). The amount of ROU asset would determine the amount of gain or loss recognised at the date of the transaction.

Staff analysis

The staff analysed when dealing with sale and leaseback transactions, how the requirements in IFRS 16:100(a) shall apply. IFRS 16:100(a) states that the seller-lessee shall recognise only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor. The proportion of the asset's previous carrying amount reflects the right of use retained by seller-lessee. The fair value of the asset at the date of transaction includes the expected economic benefits during the leaseback period. Some methods suggested include the use of the present value of (a) leaseback payments (at market rates) compared to the fair value of the asset, and (b) the residual value of the asset at the end of the lease term compared to its fair value at the date of the transaction. The seller-lessee would not comply with IFRS 16:100(a) if it were to measure the ROU asset at zero, which is not the proportion of the previous carrying amount of the asset that relates to the right of use retained by the seller-lessee.

Staff recommendation

The staff did not recommend to add the matter to the Committee's standard-setting agenda but publish an agenda decision.


In general, the Committee members agreed with the approach to calculating the gain or loss from the sale and leaseback transaction as set out in the staff paper. One of them suggested adding some wording in the tentative agenda decision on the accounting requirements for sale and leaseback transactions which reflect the economics of the contract, to make it clearer. Another Committee member commented that IFRS 16 does not specify how to calculate the proportion of the asset’s previous carrying amount that relates to the right of use retained by the seller-lessee and so the tentative agenda decision should be more open in this respect. The staff responded that the Standard is quite clear on the "value of the ROU asset" at date of transaction and there may not be a need to specify the exact way of coming up the value given that there are many ways to do it. Another Committee member raised a question relating to a renewal option.

However, the focus of the discussion was on the liability entry. One Committee member was not sure whether it is in scope of IFRS 9 or IFRS 16, or if it is an accounting policy choice. The staff admitted that the subsequent measurement of the liability is a valid question but that it is a separate question, which has no impact on the assessment of this question of determination of gain/loss on the sale and leaseback transaction. Some Committee members considered the liability is a financial liability because this is a financing arrangement, though they were not sure as to how to determine the fair value of the liability at initial recognition. Other Committee members did not agree as the nature of the liability is actually a deferred gain and lease liability (but the lease payment is variable not fixed).

The Chair suggested to cast a vote on either (i) the staff carrying out more research about the whole set of entries or (ii) publishing the tentative agenda decision with the clarification that the subsequent accounting is not being addressed.  The Committee decided, by a majority of votes, to instruct the staff to carry out further research about the subsequent accounting for the liabilities based on current literature focused on the narrow scope fact pattern.

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