IASB proposes amendment to its leases standard

In a sale and leaseback transaction, a company sells an asset and then leases that asset back from the new owner. International Financial Reporting Standard (IFRS) 16,  Leases,  includes requirements for how to account for sale and leaseback transactions at the time of the transaction; however, it does not specify how to measure the lease liability when reporting after that date.

The International Accounting Standards Board (IASB) recently proposed an amendment to IFRS 16, which, if finalized, would provide greater clarity for the company selling and leasing back an asset by:

• Requiring a seller-lessee to determine the initial measurement of the right-of-use asset at the proportion of the carrying amount of the asset. That proportion is calculated by comparing the present value of the expected lease payments, discounted using the rate specified in paragraph 26 of IFRS 16, to the fair value of the asset sold.
• Specifying the payments that comprise the expected lease payments for sale and leaseback transactions.
• Specifying how a seller-lessee subsequently measures the lease liability arising in a sale and leaseback transaction.

The Exposure Draft, Lease Liability in a Sale and Leaseback, is available for comment until March 29, 2021.

This content was originally published on RSMUS.com.