transaction described in the request: 
 

a. an entity (seller-lessee) enters into a sale and leaseback transaction whereby it transfers an item of 
property, plant and equipment (PPE) to another entity (buyer-lessor) and leases the asset back for 
five years.  


b. the transfer of the PPE satisfies the requirements in IFRS 15 Revenue from Contracts with 
Customers to be accounted for as a sale of the PPE. The amount paid by the buyer-lessor to the 
seller-lessee in exchange for the PPE equals the PPE’s fair value at the date of the transaction.  


c. payments for the lease (which are at market rates) include variable payments, calculated as a 
percentage of the seller-lessee’s revenue generated using the PPE during the five-year lease term. 
The seller-lessee has determined that the variable payments are not in-substance fixed payments as 
described in IFRS 16. 

 

The request asked how, in the transaction described, the seller-lessee measures the right-of-use asset 

arising from the leaseback, and thus determines the amount of any gain or loss recognised at the date of the 

transaction. 

 

The Committee observed that the requirements applicable to the transaction described in the request are in 

paragraph 100 of IFRS 16. Paragraph 100 states that ‘if the transfer of an asset by the seller-lessee satisfies 

the requirements of IFRS 15 to be accounted for as a sale of the asset: (a) the seller-lessee shall measure 

the right-of-use asset arising from the leaseback at the proportion of the previous carrying amount of the 

asset that relates to the right of use retained by the seller-lessee. Accordingly, the seller-lessee shall 

recognise only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor. …’. 

 

Consequently, to measure the right-of-use asset arising from the leaseback, the seller-lessee determines the 

proportion of the PPE transferred to the buyer-lessor that relates to the right of use retained—it does so by 

comparing, at the date of the transaction, the right of use it retains via the leaseback to the rights 

comprising the entire PPE. IFRS 16 does not prescribe a method for determining that proportion. In the 

transaction described in the request, the seller-lessee could determine the proportion by comparing, for 

example, (a) the present value of expected payments for the lease (including those that are variable), with 

(b) the fair value of the PPE at the date of the transaction.  

 

The gain or loss the seller-lessee recognises at the date of the transaction is a consequence of its 

measurement of the right-of-use asset arising from the leaseback. Because the right of use the seller-lessee 

retains is not remeasured as a result of the transaction (it is measured as a proportion of the PPE’s previous 

carrying amount), the amount of the gain or loss recognised relates only to the rights transferred to the 

buyer-lessor. Applying paragraph 53(i) of IFRS 16, the seller-lessee discloses gains or losses arising from 

sale and leaseback transactions. 

 

The seller-lessee also recognises a liability at the date of the transaction, even if all the payments for the 

lease are variable and do not depend on an index or rate. The initial measurement of the liability is a 

consequence of how the right-of-use asset is measured—and the gain or loss on the sale and leaseback 

transaction determined—applying paragraph 100(a) of IFRS 16. 

 

lllustrative example 
 

 

 

 

 

 

 

 

The Committee concluded that the principles and requirements in IFRS 16 provide an adequate basis for 

an entity to determine, at the date of the transaction, the accounting for the sale and leaseback transaction 

described in the request. Consequently, the Committee decided not to add the matter to its standard-setting 

agenda.