Finance Leasing Manual - FLM13.11

Sale and leasebacks: second accounting method

The second accounting method, which FRS5 makes mandatory for accounting periods ending on or after 22 September 1994, regards the transaction purely as a refinancing exercise. The asset is not treated as if it had been sold and the profit on sale is not taken. The asset stays in the vendor's balance sheet at its book value and the sale proceeds are shown as a creditor. Where this treatment is adopted and the asset remains in the balance sheet at book value more far-reaching tax adjustments are required, see FLM13.12 and FLM13.21.