If a sale and leaseback transaction results in a finance lease, IAS 17 Leases, provides the following accounting treatment for any excess of sales proceeds over the carrying amount:
A) recognise directly in retained earnings of the seller-lessee
B) immediately recognise as income by the seller-lessee
C) defer and amortise over the lease term
D) include in the capitalised amount of the leased asset.

Question

Quizplus · Accepted Answer

IAS 17 requires any excess of sales proceeds over the carrying amount in a sale and leaseback transaction resulting in a finance lease to be deferred and amortized over the lease term. This is because in a finance lease, the lessee essentially retains control of the asset and has a significant economic interest in it, so the excess proceeds should be treated as deferred financing and recognized over the lease term.

If a Sale and Leaseback Transaction Results in a Finance