Lease Liability in a Sale and Leaseback

The Board met on 22 September 2020 to discuss a sweep issue identified during the balloting process for the proposed amendment to IFRS 16 Leases. The sweep issue relates to the Board's tentative decisions on how a seller-lessee applies IFRS 16 to measure the right-of-use asset and lease liability that arise in a sale and leaseback transaction.

The Board tentatively decided to:

1. specify that in applying paragraph 100(a) of IFRS 16 to measure the right-of-use asset and lease liability arising from the leaseback, a seller-lessee determines the proportion of the asset sold that relates to the right of use it retains by comparing the present value of the expected payments for the lease at market rates, discounted using the rate specified in paragraph 26 of IFRS 16, to the fair value of the asset sold.
2. require a seller-lessee to subsequently measure the lease liability by reducing the carrying amount to reflect the expected payments for the lease.
3. require a seller-lessee to apply the proposed amendment to IFRS 16 retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, except when such application to sale and leaseback transactions with variable lease payments would be possible only with the use of hindsight. The Board tentatively decided to require a seller-lessee in such circumstances to determine the expected payments for the lease at the beginning of the annual reporting period in which it first applies the proposed amendment.

Twelve of 13 Board members agreed with these decisions. One Board member was absent.