Sale and leaseback

Sale and leaseback is a transaction in which a firm sells an asset it owns and immediately leases it back, raising cash while keeping continued use of that asset.

FrameworkIFRS 16

What it is

See it move

Loading infographic...

A firm sells a building with a €600,000 carrying value for €900,000 cash, a price gap of €300,000. It keeps using 75% of the building's remaining service potential under the leaseback, so only the 25% of rights genuinely given up is recognised now: €300,000 × 25% = €75,000. The remaining €225,000 is deferred into future lease payments.

The formula

LaTeX

G = (SP - CV) \times (1 - p)

Variables

$G$: Gain recognised immediately (€)
$S P$: Sale price (€)
$C V$: Carrying value before sale (€)
$p$: Proportion of the asset's remaining value retained through the leaseback (%)

Approximates how much of the total price gap between sale price and carrying value a seller can recognise as an immediate gain, given it keeps using part of the asset under the new lease.