Whether the transfer is a sale

Learning objectives

• Determine, applying the requirements of IFRS 15 on satisfying a performance obligation, whether the transfer of an asset by the seller-lessee is a sale, a substantive repurchase option preventing this.L2, L3

Normative references

• IFRS 16 §98If an entity (the seller-lessee) transfers an asset to another entity (the buyer-lessor) and leases that asset back from the buyer-lessor, both parties account for the transfer contract and the lease applying paragraphs 99 to 103.
• IFRS 16 §99To determine whether the transfer of the asset is accounted for as a sale, the entity applies the requirements in IFRS 15 for determining when a performance obligation is satisfied.
• IFRS 16 §B45The lessee may obtain legal title to an underlying asset before that legal title is transferred to the lessor and the asset is leased to the lessee; obtaining legal title does not in itself determine how to account for the transaction.
• IFRS 16 §B46If the lessee controls, or obtains control of, the underlying asset before that asset is transferred to the lessor, the transaction is a sale and leaseback transaction accounted for applying paragraphs 98 to 103.
• IFRS 16 §B47If the lessee does not obtain control of the asset before it is transferred to the lessor, the transaction is not a sale and leaseback transaction, for example when a manufacturer, a lessor and a lessee negotiate the purchase of the asset by the lessor and its lease to the lessee; even if the lessee obtains legal title before the lessor, the transaction is then accounted for as a lease.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

9 questions

• Pellane sells its head office to an investor and immediately leases it back. To determine whether the transfer of the building is to be accounted for as a sale, which requirements does Pellane refer to?L2
• Corvelle transfers a hangar to Stanor and then leases it back from Stanor for 7 years. Which of the following statements correctly describes the scope of the requirements on sale and leaseback transactions?L2
• In a three-party arrangement (manufacturer, lessor, lessee) involving industrial equipment, which statements are correct in determining whether there is a sale and leaseback transaction?L3
• Mirlon wants to use a new press manufactured by Hydrex. Mirlon, Hydrex and the finance company Locafin negotiate together: Locafin will buy the press and lease it to Mirlon for 6 years. For administrative reasons, legal title briefly passes through Mirlon on the delivery date, but Mirlon at no time obtains control of the press before its transfer to Locafin. How does Mirlon account for the arrangement?L3
• Fenwald buys a fleet of forklift trucks, puts them into service in its warehouses and operates them for 4 months. It then transfers them to Rentaxis, which leases them back to Fenwald for 5 years. How should the arrangement be characterised?L2
• Valtène transfers a data centre to Infrabail and leases it back for 10 years. The contract gives Valtène an option to repurchase the centre. The IFRS 15 analysis provided in the file concludes that, because of this option, control of the centre is not transferred to Infrabail. The finance director nevertheless wishes to recognise a sale, since the deed of transfer has been signed. Which conclusion do you adopt?L3
• In the draft note of Aubrac Logistique, a sale and leaseback of a warehouse is presented as a sale on the grounds that the contract is entitled sale agreement and that the buyer-lessor is an independent third party. Which correction of the justification do you propose?L3
• The conclusion of the IFRS 15 analysis of a sale and leaseback governs the whole of its subsequent accounting. Which statements about the consequences of that conclusion are correct?L2
• Ostréa's year-end is approaching. During the year it transferred its head office (carrying amount 900,000) for 1,500,000 to an investor and leased it back; the IFRS 15 analysis in the file concludes that the transfer is not a sale. The accountant derecognised the building, recognised a gain of 600,000, then recognised a right-of-use asset and a lease liability. Which correction do you propose?L3