Key Topics: Sale and leaseback accounting, call option, KPIs

Standards covered: IFRS 15 revenue from contracts with customers, IFRS 16 leases

Description: In this requirement, you are required to describe how an entity assesses whether the transfer of an asset qualifies as a sale or not in sale and leaseback accounting. You should consider how a sale and leaseback transaction should be dealt with by the seller-lessee. This question also considers the difference in treatment between the sales proceeds being lower or higher than the fair value as well as dealing with the effect of a sale and leaseback agreement which contains a call option. In this requirement, you are also expected to take the knowledge set out in 8.1 and prepare the accounting entries for the sale and leaseback transaction where the transfer is and is not a sale. Part of the requirement wants you to consider the impact of the transfer being a sale (or not) on the key performance indicators of the company. As part of this you should consider the ratios highlighted in the question, set out the formula, consider the financial statement impact and therefore the ratio impact.