Background

The IFRS Interpretations Committee received a submission about IFRS 16 Leases and a sale and leaseback transaction with variable payments that do not depend on an index or rate and came to the conclusion (and the IASB agreed) that it would be beneficial to amend IFRS 16 to specify how a seller-lessee should apply the subsequent measurement requirements in IFRS 16 to the lease liability that arises in the sale and leaseback transaction.

The IASB published an exposure draft (ED) of a proposed clarifying amendment in November 2020 and has now issued final amendments to IFRS 16.

Changes

Lease Liability in a Sale and Leaseback (Amendments to IFRS 16) requires a seller-lessee to subsequently measure lease liabilities arising from a leaseback in a way that it does not recognise any amount of the gain or loss that relates to the right of use it retains. The new requirements do not prevent a seller-lessee from recognising in profit or loss any gain or loss relating to the partial or full termination of a lease.

While the November 2020 ED had proposed that a seller-lessee initially measures the right-of-use asset and lease liability arising from a leaseback using the present value of expected lease payments at the commencement date, the final amendments do not prescribe specific measurement requirements for lease liabilities arising from a leaseback.

The amendments also include one amended and one new illustrative examples.

Effective date and transition

The amendments are effective for annual reporting periods beginning on or after 1 January 2024. Earlier application is permitted.

A seller-lessee applies the amendments retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to sale and leaseback transactions entered into after the date of initial application.

Dissenting opinion

One Board member voted against issuing the finalised amendments. This Board member believes that a sale and leaseback transaction should be accounted for by the seller-lessee by recognising the full gain or loss on the transaction immediately. This approach would have required the IASB to reconsider the sale and leaseback requirements in IFRS 16 as a whole, which the IASB decided against.

Additional information

Please click for:

• IASB press release (link to IFRS Foundation website)
• Deloitte's iGAAP in Focus newsletter.
• Our IAS Plus project page on IFRS 16 — Lease liability in a sale and leaseback