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ACCA Strategic Professional · Strategic Business Reporting (International) · Leases

Aldan Co sells a building to a bank and leases it back. Before deciding how to account for the transaction, what must Aldan assess first under IFRS 15 and IFRS 16?

The seller-lessee must first decide whether the transfer is a sale by applying IFRS 15 control-transfer criteria. If the buyer-lessor obtains control, sale and leaseback accounting applies; if not, the transaction is treated as a financing arrangement, with the asset kept and a financial liability recognised.

  1. AWhether the transfer of the building is a sale under IFRS 15, i.e. whether the bank obtains control of itCorrect
  2. BWhether the lease term covers more than 75% of the building's economic life
  3. CWhether the leaseback rentals are at market rates
  4. DWhether the building is carried at cost or at a revalued amount

Explanation

IFRS 16 requires the entity to apply the IFRS 15 requirements for satisfaction of a performance obligation to decide whether the transfer is a sale. If control does not pass, the transaction is a financing. The 75% test is from the superseded IAS 17 and is not the first step. Market rates matter only once a sale is established, when measuring the sale proceeds.

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