Sale and lease back of building in use

All topics related to IFRS Standards.
Post Reply
Anuradha13
Posts: 25
Joined: 28 Apr 2022, 11:47

Sale and lease back of building in use

Post by Anuradha13 »

Hello Everyone,

Company is planning to sell the office building and factories and lease them back for 20 years with extension for 5 years. The property has been marketed and the potential buyer has been given exclusivity period to carry on the due diligence.

Planning to close the deal by July end.

Should the building be classified as held for sale according to IFRS 5?

I think that in case of sale and lease back, the non-current asset should not be classified as held for sale according to IFRS 5. However I am not sure, could anyone help me out?


Thanks,
Anuradha
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Sale and lease back of building in use

Post by Leo »

Hi,

not IFRS5 but IFRS15, you have to assess whether it's a sale. If yes, then you recognise the ROU and Lease liability, derecognise the assets, and the delta goes to "Profit on sale of assets".
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Sale and lease back of building in use

Post by Marek Muc »

@Leo, the question concerns classification as held for sale...
Anuradha13 wrote: 10 Jun 2022, 11:59 I think that in case of sale and lease back, the non-current asset should not be classified as held for sale according to IFRS 5. However I am not sure, could anyone help me out?
I don't agree, after the sale and leaseback, you will derecognise the building and recognise a different asset - RoU
Anuradha13
Posts: 25
Joined: 28 Apr 2022, 11:47

Re: Sale and lease back of building in use

Post by Anuradha13 »

I found this write up from Grant Thornton where it says IFRS 5 is not applicable.
Attachments
IFRS 5.PNG
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Sale and lease back of building in use

Post by Marek Muc »

hmm.... to me it's not conclusive on the classification as held for sale

in your scenario, will you account for the transfer of the building as a sale under IFRS 16.99-100? If so, then it's an asset held for sale under IFRS 5 IMO
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Sale and lease back of building in use

Post by Marek Muc »

PS. and note that under IAS 17 you didn't derecognise an asset subject to sale and leaseback if the lease was a finance lease
Anuradha13
Posts: 25
Joined: 28 Apr 2022, 11:47

Re: Sale and lease back of building in use

Post by Anuradha13 »

Yes, it will be accounted as sale.

Also there is a first charge on the building for loan taken from Bank. buyer will not purchase unless the charge is removed and the discussion with bank is ongoing.

even it falls under IFRS 5, since there is a charge, we can argue that it is not available for immediate sale and not to be classified as held for sale and can be classified as sale when charge is removed.
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Sale and lease back of building in use

Post by Leo »

I can't think of any example that this fells into IFRS5. Even it's IFRS99, it talks about IFRS15 not IFR5 ?
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Sale and lease back of building in use

Post by Marek Muc »

When you plan to sell an asset you classify it as held for sale under IFRS 5. What exactly is unclear to you?
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Sale and lease back of building in use

Post by Leo »

Maybe that's something I've never come across. I would leave it in the PP&E until the transaction day. Do you have an example of a lease back classified as "Asset held for sale" somewhere ?
Ketan Marwah
Trusted Expert
Posts: 300
Joined: 16 Feb 2023, 18:10
Location: Germany

Re: Sale and lease back of building in use

Post by Ketan Marwah »

Hi Marek,

Sorry for addressing this specifically to you but as it is related to your response thus doing it.
to me it's not conclusive on the classification as held for sale
May I enquire why is not conclusive to you that it should y not be classified as held for sale especially when IFRS 16/IAS 17 excludes IFRS 5 as being out of it’s scope - as stated in the GT document even though I have to admit that I couldn’t find any such reference directly in the standard?

I have a similar situation on hand (pasting the business case) wherein I was evaluating a certain investment proposal and by reading the response I am a bit uncertain that whether I should be considering IFRS 5 anywhere until the actual deal is formalized. So far I haven’t..

Financial Appraisal
The below financial appraisal assesses the proposed divestment of the vessels compared to an alternative scenario outlined below. A cost delta approach has been applied to assess the alternatives: thus, the vessel with the lowest net present value (NPV) is the most attractive, as it will have the lowest cost over the period.
1. Base case (Sale and Leaseback): Sell xxxxx vessels at xxxx (USD xxxx per vessel) and charter them back for a firm period of two years on a TC basis at a rate of xxxxx per vessel and an additional optional year at a rate of xxxx day.
Senior Compliance & Reporting Manager
Ocean & Logistics Reporting & Accounting
Maersk Group
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: Sale and lease back of building in use

Post by Marek Muc »

Hi Ketan Marwah, when you dig out an old topic, it's time- and attention consuming for everyone, myself included, to sort through the previous posts and figure out which parts are relevant to your question. Just start a new topic and describe your specific scenario please.
Ketan Marwah
Trusted Expert
Posts: 300
Joined: 16 Feb 2023, 18:10
Location: Germany

Re: Sale and lease back of building in use

Post by Ketan Marwah »

Fully understand Marek. Let me start a new thread right away. Thanks.
Senior Compliance & Reporting Manager
Ocean & Logistics Reporting & Accounting
Maersk Group
Post Reply