Account for Acquired Leases and Sale and Leasebacks

When a lease did not start as an ordinary commencement, the measurement workflow gives you two other lease-start modes: Business Combination, when your organization acquired the lease, and Sale and Leaseback, when a seller sold an asset to your organization and leases it back. You choose the mode in the Lease Start section of the measurement wizard's Start Date step. The lease must be published and the book established before you measure; How Lease Accounting Works covers that flow.

Choose the lease-start mode

Both modes are choices on the same step as an ordinary start. Choosing one reveals its own section in the Start Date step, and the ordinary start-date candidate and its rationale step aside.

1. Open the lease and go to its Accounting page.

2. Open the book's measurement for the standard you are measuring under. The wizard opens on its Start Date step.

3. In the Lease Start section, under How did this lease start?, choose Business Combination or Sale and Leaseback. The other choices, From Commencement and Cutover, cover ordinary starts and moving from another system.

A business combination measures the lease as new on its acquisition date. A sale and leaseback starts when the sold asset is leased back. The wizard continues through its remaining steps and offers Publish in both cases.

Account for a lease acquired in a business combination

Choosing Business Combination adds a Business Combination section to the Start Date step, where you record the acquisition details behind the measurement.

1. Click Record acquisition in the Business Combination section. This opens a Business Combination slide-over; the link reads Edit acquisition once details are recorded.

2. Record the acquisition details:

   • Acquisition Date: required. The date the acquirer obtained control.

   • Acquiree: required. The business that held the lease as lessee. Search your legal entities, or create or connect one.

   • Deal Reference: optional.

   • Off-Market Terms: one set per book currency, with choices At Market, Favorable, and Unfavorable. Favorable or Unfavorable requires an Adjustment amount and a Basis of Contract Versus Market Payments or Valuation Supplied.

   • Acquiree Classification: Operating or Finance, shown where the book's standard retains the acquiree's classification. Required unless you mark the lease as modified in the combination.

   • Lease Modified in the Combination?: shown with Acquiree Classification. A modified lease is classified again at acquisition.

   • Short-Term Exemption Elected?

   • Rationale: optional.

3. Click Save to keep the details, then Next. The step records the judgment when you continue.

After recording, the section summarizes the Acquisition Date, the Acquiree, the Off-Market Terms, the Acquiree Classification where applicable, and the Short-Term Exemption.

Account for a sale and leaseback

The Sale and Leaseback mode records the transfer facts, assesses whether the transfer is a sale under the book's standard, and shows the outcome before you save.

1. Click Record the Sale in the Start Date step. This opens a Sale and Leaseback slide-over; the link reads Edit the sale once an entry exists.

2. In the Transfer section, record:

   • Transfer Date: required. It is the date the leaseback commences, prefilled from the accounting start date.

   • Sale Price, Fair Value, and Carrying Amount: required, in the book's measurement currency.

   • Land Carrying Amount: optional.

   • Building Remaining Life: optional, in months. It is needed when the transfer is not a sale.

3. In the Transfer Assessment section, answer Control Passes to the Buyer? (leaving the repurchase terms aside, does the buyer obtain control of the asset?) and add a Control Rationale.

4. Open Repurchase terms and choose the Repurchase Agreement: None, Seller Call Option, Forward (Seller Must Repurchase), or Buyer Put Option.

5. For an agreement other than None, say whether the agreement is substantive, give the Repurchase Price (a Fixed Price or Fair Value at Exercise), and enter when it is Exercisable On. A seller call option also asks whether similar assets are readily available; a buyer put option also asks whether the buyer has a significant incentive to exercise it.

6. Read the Outcome section. It reports Sale when the standard returns no failure reasons, and Failed sale with the reasons that apply otherwise.

7. Click Save to keep the entry, then Next to record the judgment.

The Outcome section also previews the off-market treatment: it asks for the sale price and fair value if either is missing, and otherwise describes the present-value basis or whether the sale is below, above, or at fair value. A Rationale field sits beside it.

When a transfer fails as a sale

In a failed sale, the asset stays on the books and the proceeds become a financial liability the leaseback payments service. The book's standard decides the outcome from control, the leaseback classification, and the repurchase facts:

• If control does not pass, the transfer fails under every standard (Buyer Does Not Obtain Control).

• A substantive seller call option or forward fails under IFRS 16 and FRS 102. ASC 842 also fails a substantive seller-held repurchase, except a seller call option at fair value when similar assets are readily available (Seller Can or Must Repurchase).

• A substantive buyer put option fails when the buyer has a significant incentive to exercise it (Buyer Is Expected to Put the Asset Back).

• Under ASC 842, a finance leaseback also fails the sale (Leaseback Is a Finance Lease).

Recognize the sale when a repurchase option lapses

A failed sale can become a sale later. When the repurchase option that kept the transfer from being a sale lapses or stops being substantive, the Recognize the sale action records the sale at that point.

1. Open the book's Measurement page. The action appears in the page header only while the book was started as a Sale and Leaseback and is measured as a Failed Sale and Leaseback, has no draft version, and you can edit the book's accounting.

2. Click Recognize the sale. It opens a Recognize the Sale slide-over.

3. Enter Option Lapsed On (required) and the Fair Value at the Lapse and Carrying Amount at the Lapse.

4. Save. The leaseback is then measured as a lease from the lapse date, and the financial liability is derecognized.

Set the gain policy and map the treatment

Two setup choices sit behind these workflows: the gain policy in the reporting entity's policy election set, and the Failed Sale-Leaseback treatment in your chart of accounts mapping.

In the policy election set (Setup, then Accounting, then Policy Election Sets), the choice How Is the Gain on a Sale and Leaseback Recognized? appears only when the standard offers more than one policy. ASC 842 always recognizes the full gain and IFRS 16 always recognizes only the gain on rights transferred, so neither shows a choice. FRS 102 offers Gain on Rights Transferred Only, and Defer the Gain Over the Lease Term, which defers an amount over the carrying amount and releases it over the lease term while a shortfall is recognized as a loss at once.

In chart of accounts mappings, each standard's treatments include a Failed Sale-Leaseback tab alongside its other treatments, so journal entries from a failed sale can code to it. Classification as operating or finance applies only under ASC 842; IFRS 16 and FRS 102 books use a Single Model. See How Lease Accounting Works for books and Classify GL Accounts and Review Mapping Warnings for mapping accounts.