Deloitte comment letter on the IASB's proposal on lease liability in a sale and leaseback

Published on: 29 Mar, 2021

We have commented on IASB exposure draft ED/2020/4 ‘Lease Liability in a Sale and Leaseback’, which was published by the IASB on 27 November 2020. The exposure draft aims at clarifying how a seller-lessee should apply the subsequent measurement requirements in IFRS 16 to the lease liability that arises in a sale and leaseback transaction.

We do not support the proposals in the ED for reason cited by Ms Flores in her alternative view. We are concerned that the method proposed results in recognition of a lease liability for the expected variable payments not based on an index or rate, which is inconsistent with the general requirements in IFRS 16 and that the ED will be difficult to implement. In addition, we propose that a practical alternative would be to require that the “deferred gain” that results from the mechanical application of the existing requirements in IFRS 16:100 be recognised in profit or loss over the lease term on a straight-line basis (or another systematic basis) and presented as a reduction of the lease expense and suggest that no amendment be made at this time to specify the method that should be used by a seller-lessee to measure the proportion of the previous carrying amount of the lease asset that relates to the right of use retained.

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