11. Sale and Lease Back (SLB)

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11. Sale and Lease Back (SLB)

• Sale and Lease Back is another method of finance.
  This method is generally applied by financers to
  enhance security.
• Sale and Lease Back can be
• i) Sale Financial Lease Back
  (Purchase Back)
• ii) Sale Operating Lease Back (Rent
  Back )

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• b) Sale and Financial Lease Back
• Whenever Sale and lease back is of financial
  nature, than any profit or loss on sale will be
  deferred and amortized in the ratio of
  Depreciation.
• Deferred Income is shown as part of Reserve
  Surplus.
• Deferred Loss is shown as Miscellaneous
  Expenditure.

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• c) Sale and Operating Lease Back (SOL)
• Whenever asset is sold and taken back on
  Operating Lease.
• In such cases asset are sold and accounting
  for sale is journalized.
• Profit and Loss on sale is dealt as follows
• Step 1 Calculate and Journalize Impairment
  loss on asset sold.
• Carrying Amount Fair Value
• PL a/c Dr
• To Asset a/c
• (Being Asset Impaired)

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• Step 2 Calculate Deferred Gain or Deferred Loss
• Deferred Gain Sale Value Fair Value
• Deferred Loss Fair Value gt Sale Price (For
  Testing Purpose Only)
• Loss will be deferred if lease rentals are lower
  than Market Rate.
• Bank a/c Dr
  (Sale proceed)
• Deferred loss a/c Dr
  (Balancing Fig)
• To Asset a/c
  (carrying amount after impair)
• To Deferred Gain a/c
  (If any)
• (Being asset Sold)
• Step 3 Any gain or loss deferment will be
  recorded as Profit or Loss.

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12.Treatment of Operating Leases

• Books of Lessee and Lessor.
• Lease Rentals incurred are taken as Income or
  Expense for Lessor and lessee respectively.
• Lease Rentals should be recognized on the basis
  of Benefit availed / Provided.
• Benefits means advantage from right to use asset.
• In such benefit can not be identified than apply
  SLM method approximately.

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10. Disclosure Requirements

• Statement of lease Rentals (Exemption)
• Period Amount
  
• 0 12 Month ---------
  
• 12 60 Month ---------
  
• 60 Beyond ---------
  
• Sublease Rentals received by lessee.
• General Description of leasing Policies.

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• 14. This AS is not applicable on
• Land, mines, forests etc
• Contingent rent is not included in lease rental
  but disclosed in lease rentals.