Finance Leasing Manual - FLM13.06

Sale and leasebacks: accounting treatment: SSAP21 Guidance Notes

The Guidance Notes on SSAP 21 suggest that the situation can be accounted for in one of two ways in the hands of the lessee:

• under the first method the asset is treated as sold, the profit is amortised over the lease period and the finance lease is accounted for as a separate transaction, see FLM13.08;

• under the second method the sale and leaseback is accounted for as a loan, the asset is not treated as if it had been sold and the profit on sale is not taken, see FLM13.11.

Although both methods are permitted under SSAP21, for accounting periods ending on or after 22 September 1994 Financial Reporting Standard (FRS) No.5 (Accounting for the substance of transactions) requires the second method to be used.