A sale followed by a leaseback in the form of a finance lease
can result in an apparent profit or a loss if the capital value
attributed to the asset for the purposes of the lease is not the
same as the carrying value of the asset in the books of the
vendor/lessee at the time of sale. It would, however, be
inappropriate to recognise this profit because, the seller/lessee
has not, in substance, disposed of the asset. The example at
BLM35030 shows that where an asset is
sold and leased-back for more than its book value there will be a
profit on the disposal of an asset. Similarly, if an asset is sold
and leased-back for less than its book value, there will be a loss
on disposal.
Capital / revenue issues are primarily questions of law, not
of accounting treatment (see
BIM35210). Because of the
bookkeeping the whereabouts of the profit may not be particularly
obvious, but there is nonetheless a (capital) profit which, if it
is recognised in measuring the amount of lease rentals written off
in the profit and loss account, should be excluded in the tax
computation. Similarly, the whereabouts in the accounts of any loss
on disposal may not be obvious, but if there is a loss it will be a
capital loss which should not be deducted for tax purposes.
