International Accounting Standard Board (IASB) issued amendments concerning requirements for sale and leaseback transactions in IFRS 16. It explains how a seller-lessee accounts for a sale and leaseback after the date of the transaction.

The amendment applies to annual reporting periods beginning on or after 1 January 2024 and can be applied earlier. The amendments will not change the accounting for leases other than those arising in a sale and leaseback transaction.

When originally issued, IFRS 16 included no specific measurement requirements for sale and leaseback transactions. It was not always clear how to measure the liability arising from a leaseback, especially where the payments for the lease include payments that do not meet the definition of ‘lease payments.’

The amendment addresses how a seller-lessee should measure the right-of-use asset arising from a leaseback with variable lease payments (Not fixed payment).

A sale and leaseback is a transaction for which a company transfers or sells an asset and leases that same asset back for a period of time from the new owner. The seller(lessee) must assess whether the transaction is a sale as per the requirements of IFRS 15 (Revenue from contracts with customers) in order to recognize gain or loss.

If the transfer of the asset is accounted for as a sale, IFRS 16 requires the seller-lessee to recognize the leaseback by recognizing a lease liability, reflecting the payment terms of the leaseback and a right-of- use asset for the right of use retained. The seller- lessee recognizes only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor.