Vous êtes sur la page 1sur 20

LIABILITY

Liabilities are present obligations of an entity arising from past transactions or


events, the settlement of which is expected in an outflow from the entity of
resources embodying economic benefits
Essential Characteristics
the liability is a present obligation
the liability arises from a past event
the settlement of the liability requires an outflow of resources embodying
economic benefits
Initial Measurement of Liability
FV-Transaction Costs
(Expensed if FV through P/L)
fees & commission
levies by regulatory agencies
transfer taxes & duties
not included
debt premiums/ discounts
financing costs
internal administrative/holding costs
FV Option
*credit risk= OCI
Subsequent measurement
at amortized cost
at fair value through P/L
Measurement of Noncurrent liabilities
Noncurrent liabilities are measured at present value and subsequently measure at
amortized cost. If the long-term not is interest bearing, it is measure at face amount
Measurement of Current liabilities- reported at face amount
Current liabilities
it is expected to be settled in the entitys normal operating cycle
it is held primarily for the purpose of trading
it is due to be settled within twelve months after the balance sheet date
the entity does not have an unconditional right to defer settlement of the
liability for at least twelve months after the the blance sheet date

Noncurrent liabilities
Liabilities not classified as current. These include the following: noncurrent
portion of long term debt, capital lease liability, noncurrent deferred tax liability,
long term obligations to company officers, long term deferred revenue
Refinancing activity
Current: between end of reporting period & date of authorization for issue of
financial statement
Noncurrent: on/before end of reporting period or the entity has discretion to
refinance
Breach of covenant
PAS 1, par. 74, states that such liability is classified as current even if the lender
has agreed after the reporting period and before the statements are authorized for
issue, not to demand payment as a consequence of the breach
Liability is classified as noncurrent if the lender has agreed on or before the end of
the reporting period to provide a grace period ending at least twelve months after
that date.

PREMIUM AND WARRANTY LIABILITY


Premiums are articles of value such as toys, dishes, silverware and other goods and
in some cases cash payments given to customers as result of past sales or sales
promotion
Recognition of the premium liability are as follows
When premiums are purchased
Premiums
XX
Cash
XX
When premiums are distributed
Premium expense
XX
Premiums
XX
If premiums are still outstanding
Premium expense
XX
Estimated premium liability
XX
Computation of EWL
To be redeemed
XX
Redeemed
(XX)
Balance
XX
Customer Loyalty Program (IFRS 15)
Generally designed to reward customers for past transactions and t provide them
incentives to make further purchases,
Award Credits (points)-measured at fair value
Deferred revenue, separately component of the initial sale transaction or future
delivery of goods or sevices
Estimated Warranty Liability- at the point of sale, a constructive obligation
arises and a liability is incurred
Expense as incurred approach- warranty expense is only recorded when incurred
Accrual approach- the soundest theoretical support because it properly matchest
the cost with the revenue
Testing the accuracy of warranty liability- Sales made evenly
Assumed that half of sales were made on the first period and
that the other half of it were sold on the half of the period

Sale of Warranty- sold separately from the product sold or may offer the product
sold but with an additional cost. Amount is recognized as deferred revenue.
Accrued Liabilities and Deferred Revenue
Payroll Tax Expense
Under our law, the entity as an employer is required to withhold from the salaries
of each employee the following:
income tax payable by the employee
employee contribution to the SSS
employee contribution to the Philhealth
employee contribution to the Pag-ibig fund
Such amounts withheld from the salaries shall be recognized as payroll taxes
payable until remitted by the entity to the appropriate government authority
Value Added Taxes Payable
Under the National Internal Revenue Code, the entity is required to collect value
added taxes from customers on sales of tangible personal property and certain
services
Such value added taxes collected shall be recognized as value added taxes
payable and remitted monthly to the BIR
Gift Certificates Payable
When the gifts certificates are sold, the amount received is initially recognized as
unearned revenue or gifts certificate payable. The subsequent redemption of gift
certificates is recognized by debiting gift certificates payable and crediting sales
revenue. The DTI ruled that gift certificates no longer have an expiration period.
GCs may be forfeited as other income when not presented for redemption.
Refundable Deposits
Refundable deposits consist of cash or property received from customers but which
are refundable after compliance with certain conditions.
Bonus Computation- large entities compensate key officers and employees by
way of bonus for superior income realized the year. The purpose is for motivation.
bonus is expressed as a percent of income before bonus and tax
bonus is expressed as a percent of income after bonus but before tax
bonus is expressed as a percent of income after and tax
bonus is expressed as a percent of income before bonus but after tax

PROVISION AND CONTINGENT LIABILITY


PAS 37 par. 14
Provision is an existing liability of uncertain timing or amount. The liability does
exist on balance sheet date but the amount or the date of obligation is due and in
some cases the payee cannot be determined. It is the equivalent of estimated
liability or a loss contingency that is accrued because it is both probable and
measurable.
Recognition of Provision according to PAS 37 par. 14
the following conditions must be met
It is a present obligation. Legal or constructive as a result of past event
Probable that an outflow of economic benefits is required to settle it
The amount can be measured reliably
Measurement of Provision
The amount recognized as a provision should be the best estimate of the
expenditure required to settle the present obligation at the balance sheet date. The
estimates of outcome are determined by the judgment of the management. Where
there is a continuous range of possible outcomes, the midpoint of the range is used
The expected outflows- the range of outflows and their effects shall be taken into
account by estimating the expected present value of the outflows
Elements in the measurement of the present value of the obligation
the expected outflows
the time value of money
the risk that the actual outflows might differ from the expected outflows
Other measurement consideration
the risks and uncertainties
present value of an obligation
future events
expected disposal of assets
reimbursements
changes in provision

use of provision
future operating loss
onerous contract
Examples of Provision
warranty
environmental contamination
decommissioning or abandonment cost
court case
guarantee
Decommissioning Liability
The outflows include the amount that the entity would rationally pay a contractor
if theres an active market- the amount is the price that the entity estimates a
contractor would charge
if theres no active market for the service- the amount if would charge
another party at the future date to undertake the service
Restructuring
PAS 37 par. 10 defines restructuring as a program that is planned and controlled
by management and materially changes either the scope of an enity or the manner
in which that business is conducted.
Provision for restructuring
when the entity has a detailed formal plan for the restructuring
the entity has raised valid expectation in the minds of those affected
Amount of restricting provision
A restructuring program shall include only direct expenditures arising from
restructuring. The expenditures are necessarily entailed by the restructuring and
not associated with the ongoing activities of the enity
Contingencies
Contingent liability- is a possible obligation that arises from past event and whose
existence will be confirmed only by the occurrence or nonoccurrence of one or
more uncertain future events not wholly within the control of the entity.
Contingent asset- is a possible asset that arises from past event and whose
existence will be confirmed only by the occurrence or nonoccurrence of one or
more uncertain future events not wholly within the control of the entity.
Degrees of probability Contingent Liability
Contingent Asset
according to PAS 37

Virtually certain 95%


Provide
Recognize
Probable, above 50%
Provide
Disclose to note
Possible 5% to 50%
With disclosure
No disclosure
Remote, below 5%
No disclosure
No disclosure
BONDS PAYABLE
Bond is a contract of debt whereby one party called the borrower or issuer borrows
funds from another party called the investor or bondholder
Bond indenture- document which shows in detail the terms o the bond and the
rights and duties of the borrower and other parties to the contract
Types of bonds
term bonds- bonds with single maturity date
serial bonds- bonds with series of maturity date
mortgage bond- bonds secured by mortgage or real properties
collateral bonds- bonds secured by investments in stocks and bonds
debenture bonds- bonds without collateral security
registered bonds- requires the registration of the name of the bondholder on
the books of the corporation
coupon bonds- the name of the bondholder is not registered
convertible bond- bonds that can be exchanged for equity shares of the entity
callable bonds- bonds that can be called in for payment anytime
guaranteed bond- bonds issued whereby another party guarantees to pay if
the borrower fails to do so
junk bonds- high risk high yield bonds
commodity-backed binds- bonds redeemable in commodities such as oil
Premium on bonds payable- sales price is more than the face value of the bonds
Discount on bonds payable- the sales price is less than the face value of the bonds
Bond issue costs- incremental costs that are directly attributable to the issue of the
bonds payable.
Measurement of bonds payable
PFRS 9 par. 5.1.1 provides that bonds payable not designated at fair value through
profit or loss shall be measure initially at fair value minus transaction costs. The
fair value is equal to the present value of the future cash payments
When bonds are designated at fair value through profit or loss, the bond issue costs
are treated as expense immediately. The fair value of the bonds is the same as the
issue price or net proceeds excluding accrued interests.

Subsequent measurement of bonds payable


PFRS 9 par. 5.3.1- after initial recognition, bonds shall be measured at
at amortized cost, using effective interest method
at fair value through profit or loss
Amortized cost of bonds payable
The difference between the face amount and present value of the bonds payable is
amortized using the effective interest method
Fair value option
Bonds payable are measure at fair value and remeasured at every year end at fair
value and any changes in FV are recognized in profit or loss
Any changes in FV attributable to the credit risk is recognized in OCI
There is no more amortization and interest expense is based on the stated rate
Bond retirement
On maturity date
Bonds payable
XX
Interest expense
XX
Cash
XX
Prior maturity
1. update amortization
2. compute for the balance of amortization
3. compute for the accrued interest if any
4. compute for cash consideration- retirement price plus accrued interest
5. compute the CA of the bonds
6. compute for the gain or loss- CA less retirement price
7. Bonds payable
XX
Interest expense
XX
Loss on retirement XX
Discount on bonds XX
Cash
XX
Treasury bonds-entitys own bonds issued reacquired but not canceled
Accounting for treasury bonds- when treasury bonds are reacquired, the treasury
bonds account is debited and any related unamortized discount or premium is
canceled, the difference between acquisition cost and the CA is treated as gain or
loss. Any accrued interest paid is charged to interest expense. Treasury bonds are
reported in the statement of financial position as deduction from bonds payable.

Bond refunding- premature retirement of old bonds by issuing new bonds


Bond refunding charges- refunding charges include unamortized premium or
discount, and redemption premium on the bonds being refunded
PFRS 9 par. 3.3.1 states that bond refunding is an extinguishment of financial
liability par. 3.3.3 further provides that the difference between the CA and the
consideration paid shall be included in profit or loss.
EFFECTIVE INTEREST METHOD
Nominal rate- the rate appearing on the face of the bonds. Also known as coupon
or stated rate.
Effective rate- the rate that exactly discounts estimated cash future payments
through the expected life of the bonds payable or when appropriate. Also known as
yield or market rate.
If the bonds are sold at face amount, the nominal rate and effective rate are the
same.
If the bonds are sold at a discount, the effective rate is higher than nominal rate.
If the bonds are sold at a premium, the effective rate is lower than nominal rate.
Effective interest method
The effective interest method or simply interest method or other know as scientific
method recognizes two kinds of interest, the nominal and effective rate.
The annual amortization of premium or discount is computed by multiplying the
face amount of the bonds payable by the nominal rate.
The nominal interest expense is computed by multiplying the face amount of the
bonds payable by the nominal rate.
The effective interest method provides for an increasing amount of premium
amortization but a decreasing amount of interest sexpense.
Bond issue cost
The calculation of effective interest rate shall include all transaction costs,
premiums and discounts.
Under the effective interest method, bond issue cost must be lumped with the
discount on bonds payable and netted against the premium on bonds payable.
Accordingly, bond issue costs will increase discount and decrease premium on
bonds payable

COMPOUND FINANCIAL INSTRUMENTS


PAS 32, par. 28 defines compound financial instrument as a financial instrument
that contains both a liability and an equity element from the perspective of the
issuer.
Characteristics of a compound financial instrument
There must be a contract
There are at least two parties involved
The contract shall give rise to a financial asset of one party and a financial
liability or equity instrument of another party.
Accounting for a compound financial instrument
If the financial instrument contains both a liability and an equity component, PAS
32, par. 29, mandates that such components shall be accounted separately in
accordance with substance of the contractual arrangement and the definition of a
financial liability and an equity,
Bonds payable issued with share warrants
When bonds are sold with share warrants two securities are sold- the bonds and
share warrants. Share warrants to the bonds may ne detachable or non-detachable.
Allocation of issue price
The bonds are assigned an amount equal to the market value of the bonds ex
warrants regardless of the market value of the warrants. The residual amount or
remainder of the issue price shall then be allocated to the warrants. If the bonds
have no known market value ex-warrant, the amount allocated to the bonds is
equal to the present value of the bonds payable.
Convertible bonds
Convertible bonds are those which give the holders the right to convert their
bondholding into share capital or other securities of the issuing entity within a
specified period of time
Issue of a convertible bond

Classify the instrument or its component parts on initial recognition as a financial


liability, a financial asset or an equity instrument with the substance of the
contractual arrangement and the definitions of a financial liability, a financial asset
and equity instrument.
Allocation of issue price
The bonds assigned an amount equal to the market value of the bonds without the
conversion privilege. The residual amount of the issue price shall then be
allocated to the conversion privilege or equity component. In the absence of
market value without conversion privilege, the amount allocated to the bonds is
equal to the present value of the bonds payable
Conversion of a debt instruments
The carrying value, which is equal to the face amount of the instrument plus or
minus any unamortized premium or discount, is derecognized as a liability & will
be recognized as equity. The equity component at the time of issue (of the
compound instruments) remains in equity (although it may be transferred from one
line item within equity to another0. No gain or loss is recognized on the conversion
of debt equity
Retirement of bonds prior maturity
Non-convertible bonds= the unamortized cost(principal + any unamortized
premiums or any unamortized discount any unamortized issue cost) of
the bond retirement price excluding any payment for accrued interest
should be recognized in the profit or loss as a finance income or expense
Convertible bonds= the redemption price + any transaction costs are
allocated to the liability and equity components at the date of transaction.
The method used in allocating the consideration pain and transaction costs to
the separate components is consistent with that used in the original
allocation to the separate components of the proceeds received when the
convertible instrument was issued. The difference of the redemption price
assigned to the debt part less the amortized cost of the debt is reported in the
profit or loss as finance income or expense while the difference of the
redemption price assigned to the equity part and the carrying value of the
equity is reported directly inside the equity as a reserve (gain) or a change
against the retained earnings (loss).

NOTE PAYABLE
A promissory note is an unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to bearer.
Initial measurement of note payable
PFRS 9 par. 5.1.1 provides that a note payable shall be measured initially at fair
value minus transaction costs that are directly attributable to the issue costs of the
note.
If the note is irrevocably designated at fair value through profit or loss, the
transaction costs are expensed immediately.
Subsequent measurement of note payable
PFRS 9 par. 5.3.1 provides that after initial recognition, a note payable shall be
measured at amortized costs using the effective interest method or at fair value
through profit or loss.
Amortized cost of note payable
The difference between the face amount and present value of the note payable is
amortized through interest expense using the effective interest method.
Fair value option
Under the fair value option, the note payable shall be measured initially at fair
value and remeasured at every year end at fair value and any changes in fair valu
are recognized in profit or loss. Any changes in fair value attributable to credit risk
of note payable are recognized in other comprehensive income. No amortization of
transaction cost, discount or premium. The interest expense is recognized using the
nominal rate.

DEBT RESTRUCTURE
Debt restructuring is a situation in which the creditor for economic or legal reasons
related the debtors financial difficulties grants a concession to the debtor that it
would not otherwise consider. That the concession either from an agreement
between the creditor and the debtor or is imposed by the law or cout.
Types of restructuring
Asset swap- is the transfer of any asset such as real estate, inventory or investment
by the debtor to the creditor in full settlement of an obligation.
PFRS 9 par. 3.3.1 and 3.3.3, asset swap is treated as a derecognition of a financial
liability or extinguishment of an obligation.
The difference between the carrying amount of the financial liability over the
carrying amount of the asset given is recognized in profit or loss
USA GAAP, asset swap is recorded as if two transactions have taken place, the
sale of the asset and the extinguishment if the liability. Accordingly, two gains or
losses are recognized. The difference between the fair value and the carrying
amount of the asset is the gain or loss from exchange while the difference between
the carrying amount of the liability over the fair value of the asset is gain or loss
from restructuring.
Dacion en pago- arises when a mortgaged property is offered by the debtor in full
settlement of the debt. The transaction is accounted for as an asset swap.
Equity swap- the issuance of share capital by the debtor to the creditor in full or
partial payment of an obligation.
IFRIC 19 The equity instruments issued to extinguish a financial liability shall be
measured at the following amounts in the order of priority
1. Fair value of equity instruments issued
2. Fair value of the liability extinguished
3. Carrying amount of the liability extinguished
Such gain or loss on extinguishment shall be disclosed as a separate line item in the
income statement.

Modification of terms
Interest concession- may involve a reduction of the interest rate. Forgiveness of
unpaid interest or a moratorium on interest payment
Maturity value concession- may involve an extension of the maturity date or
reduction of the amount to be paid at maturity
Accounting for substantial modification
PFRS 9 par. 3.3.2 provides that a substantial modification of terms of an existing
financial liability shall be accounted for as an extinguishment of the old financial
liability
Under Application Guidance B3.3.6 of PFRS 9 there is substantial modification
of terms if the gain or loss is at least 10% of the carrying amount of the liability.
The difference between the present value of the new liability over the carrying
amount of the liability is treated as gain or loss on extinguishment. The present
value of the new liability shall be determined using the original effective interest
method.
Accounting for no substantial modification
Application guidance B3.3.6, if the gain or loss is less than 10% of the old
liability, theres no substantial modification of terms.
The gain or loss is not recognized because the modification is not an
extinguishment of the old liability. The old liability is simply continued but with
modified interest charges.

OPERATING LEASE
PAS 17 par. 4 defines a lease as an agreement whereby the lessor conveys to the
lessee for a payment or series of payments the right to use an asset for an agreed
period of time
Operating lease in the books of the lessee
PAS 17 par. 33 provides that lease payments under an operating lease shall be
recognized as an expense on a straight line basis over the lease term unless another
systematic basis is more representative of the time pattern of the users benefit.
1. The lessee will not recognize the leased asset.
2. Rentals under operating leases should be charged to the income statement on
a straight line basis over the term of the lease.
3. Any difference between the amounts charged and amounts paid should be
adjusted to repayment accruals.
4. Any incentives given by the lessor should be recognized over the life of the
lease on the straight line basis.
5. Any lease bonus is recognized as additional rent expense over the lease term.
6. Any leasehold improvement is depreciated over the lease term or life of
asset whichever is shorter.
Operating lease on the books of the lessor
PAS 17, par. 50, lease income from operating lease on the part of the lessor shall
be recognized on a straight line basis over the lease term, unless another systematic
is more representative of the time pattern in which use benefit derived from the
leased is diminished.
1. The periodic rental in an operating lease is recognized as rent income.
2. A lessor shall present in the statement of financial position.
3. The leased property remains as an asset of the lessor but he may pass on the
lessee the payment for taxes, insurance and maintenance.
4. The depreciation for the leased shall be depreciated in a normal way.
5. Any security deposit shall be accounted for as a liability.

6. Any lease bonus is recognized as unearned rent income.


7. Initial direct costs of the lease may be spread over the life of the lease
PAS 17 par. 33 & 50 provide where the operating lease requires unequal cahs
payments, the total rental payments for the lease term shall be amortized uniformly
on the straight line basis on the part of the lessee or rent income on the part of the
lessor over the lease term.
FINANCE LEASE
Finance on the books of the lessee
PAS 17, par. 12 states that lessees should recognize finance leases as assets and
liabilities in their balance sheets at amounts equal at the inception of the lease to
the fair value of the leased property or if lower at the present value of the minimum
leased payments. In calculating the present value of the minimum lease payments
the discount factor is the interest rate implicit in the lease, if this is practicable to
determine, if not, the lessees incremental borrowing rate should be used.
A contract of lease may lead to a finance lease if any of the following is met
1. The lease transfers ownership to the lessee by the end of the lease term.
2. The lessee has the option to purchase the asset at a bargain
3. The length is for the major part of the economic life of the asset even if the
title is not transferred. Major implies over 75%.
4. At the inception of the lease, the present value of the minimum lease
payments amounts at least substantially all of the fair value of the leased
asset. Substantial implies 90% of the fair value of the asset.
5. The assets are of a specialized nature such that only the lessee can use them.
Indicators of situations that individually or in combination could also lead to a
lease being classified as finance lease
1. If the lessee can cancel the lease, the losses of the lessor in connection of the
cancellation shall be incurred by the lessee.
2. Gains or losses from the change in FV of the residual accrue to the lessee.
3. The lessee has the ability to continue the lease for a secondary term at a rent
that is substantially lower than the market rent.
The cost of a leased asset acquired on a finance lease should be the present value
of future minimum payments. Minimum payments include rental payments
required over the lease term plus any amount to be paid for the residual value,
either through bargain purchase or a guarantee of the residual value. Any
executor costs such as maintenance, and taxes do not form part of the minimum

lease payments. There is a bargain purchase option if the price is less than the fair
value of the asset upon the option exercise date, since the option price is is
estimated to be the same fair value on option exercise date, therefore, the lease
contract has no bargain purchase option.
Initial direct costs are often incurred by the lessors and include amounts such as
commissions, legal fees and internal costs that are incremental and directly
attributable to negotiating and arranging a lease. For finance leases other than those
involving manufacturer of dealer lessors, initial direct costs are included in the
initial measurement of the fianc lease receivable and reduce the amount of income
recognized over the lease term, the interest rate implicit in the lease is defined in
such a way that the initial direct cost are included automatically in the finance
receivable, there is no need to add them separately. Cost incurred by manufacturer
or dealer lessors in connection with negotiating and arranging a lease is excluded
from the definition of initial direct costs. As a result they are excluded from the net
investment in the lease and are recognized as an expense when the selling prfit is
recognized, which for a finance lease is normally at the inception of the term.
Depreciation on leased assets will depend on how the lease qualifies as a
finance lease
If the lease transaction met the criterion as either transferring ownership or
containing a bargain purchase option, the asset is depreciated over the the
estimated useful life
If the transaction qualifies as finance lease because it met either the major part of
useful life or because the present value of the minimum lease payments
represented substantially all of the fair value of the asset, it must be depreciated
over the lease term or life of the asset whichever is shorter.
If theres no reasonable certainty that the lease will obtain ownership by the end of
the lease term, the asset should be fully depreciated over the shorter of the lease
term or its useful life. Therefore, the leased asset should be fully depreciated voer
the lease term.

DIRECT FINANCING LEASE AND SALES TYPE LEASE-LESSOR


Direct financing lease is an arrangement between a financing entity and a lessee.
The income of the lessor is only in the form of interest income. No dealer profit is
recognized because the fair value and the cost of the asset are equal. A direct
financing lease is the result of an entitys need to finance the acquisition of an
asset. In the absence of conventional financing, an entity may turn to a leasing
entity for the lease of the desired asset.
Accounting considerations
Gross investment in the lease- equal to the gross rentals for the entire lease
term plus the absolute amount of the residual value whether guaranteed or
unguaranteed. This is the amount debited to lease receivable.
Net investment in the lease- equal to the cost of the asset plus any direct cost
incurred by the lessor.
Unearned interest income- total financing revenue of the lessor which is the
difference between the gross investment and net investment in the lease.
Initial direct cost- added to the cost of the asset to get the net investment in
the lease.
Sales type lease involves the recognition of a manufacturer or dealer profit on the
transfer of the asset to the lessee in addition to the recognition of interest income.
Accounting consideration
Gross investment- equal to the gross rentals for the entire lease term plus the
absolute amount of the residual value whether guaranteed or
unguaranteed. This is the amount debited to lease receivable.
Net investment in the lease- equal to the present value of the gross rental
plus the present value of the residual value, whether guaranteed or
unguaranteed.
Unearned interest income- total financing revenue of the lessor which is the
difference between the gross investment and net investment.
Sales- amount equal to the net investment or FV of asset whichever is lower.

Cost of goods sold- equal to the cost of the asset plus any initial direct cost.
Gross profit- sales minus cost of goods sold
Initial direct cost- amount is expensed immediately as a component of cost
of goods sold.
Actual sale of the leased asset- the difference between the carrying amount of the
lease receivable is recognized in profit or loss. The carrying amount of the lease
receivable is equal to the balance of the lease receivable minus the unearned
interest income.
SALE AND LEASBACK
Sale and leaseback is an arrangement whereby one party sells a property to another
party and then immediately leases the property back from to its new owner. The
sell becomes the lesse and the purchaser becomes the lessor. The lease rent and the
sale price are usually interdependent as they are negotiated as a package. The
accounting treatment of a sale and leaseback transaction depends upon the typed of
the lease involved.
Sale and leaseback as a finance lease
PAS 17 par. 59 provides that if the sale and leaseback transaction results in a
finance lease, any excess of the sale proceeds over the carrying amount shall not be
immediately recognized as income but deferred and amortized over the lease term.
Any gain from sale and leaseback is deferred and amortized over the term
Any loss on sale and leaseback is recognized immediately
Sale and leaseback as an operating lease
PAS 17 par. 61 provides the following rules if the leaseback is an operating lease.
If the sale and leaseback is established at FV, any gain or loss on sale shall
be recognized immediately.
If the sale price is below fair value, any gain or loss shall also be recognized
immediately. If the loss is compensated by future lease rental at below
market value, the loss is deferred and amortized in proportion to the lease
term.
If the sale price is above fair value, the excess over the fair value is deferred
and amortized over the lease term.
PAS 63 further provides that the carrying amount of the asset is written down to
fair value and the writedown is accounted for as an impairment loss.