Amendments to IFRS 16 Leases impact how a seller-lessee accounts for variable lease payments that arise in a sale-and-leaseback transaction. The amendments introduce a new accounting model for variable payments and will require seller-lessees to reassess and potentially restate sale-and-leaseback transactions entered into since 2019.

In a welcome move, the IASB has simplified its earlier proposals, which were more detailed and prescriptive. However, the core requirement to include variable lease payments in a lease liability arising from a sale-and-leasback transaction remains a significant departure from the general model in IFRS 16.

Brian O'Donovan
KPMG International Standards Group

Plugging a gap in IFRS 16

Stakeholders questioned how to measure the right-of-use asset and lease liability if variable lease payments arise in a sale-and-leaseback transaction. For example, if all of the lease payments in the leaseback depend on the future sales of the seller-lessee, then is it acceptable for the lessee to measure the right-of-use asset and lease liability at zero and, therefore, recognise a full gain or loss on the sale at the date of the transaction?

Initially, the IFRS® Interpretations Committee (the Committee) concluded that the right-of-use asset and lease liability are unlikely to be measured at zero. In other words, IFRS 16 requires a seller-lessee to estimate the variable lease payments it expects to make over the lease term. However, the Committee recommended that the International Accounting Standards Board (IASB) consider amending IFRS 16 to address the subsequent accounting.

Recognising variable lease payments as a liability

The amendments confirm the following.

  • On initial recognition, the seller-lessee includes variable lease payments when it measures a lease liability arising from a sale-and-leaseback transaction.
  • After initial recognition, the seller-lessee applies the general requirements for subsequent accounting of the lease liability such that it recognises no gain or loss relating to the right of use it retains.

A seller-lessee may adopt different approaches that satisfy the new requirements on subsequent measurement.


A seller-lessee enters into a sale-and-leaseback transaction in which the carrying amount of the underlying asset immediately before the sale is 80. The present value of the expected lease payments (all variable) is 50 and the fair value of the underlying asset is 100, which equals the consideration received.

At the date of the transaction

The seller-lessee would measure the right-of-use asset at 40 (80*(50/100)) and the gain to be recognised in profit or loss at 10 ((100-80)*(50/100)). Therefore, it would measure the lease liability at 50, even though all of the lease payments are variable.

Subsequent accounting for the lease liability

The seller-lessee would reduce the lease liability as if the ‘lease payments’ estimated at the date of the transaction had been paid. It would recognise any difference between those lease payments and the amounts actually paid in profit or loss.

It could determine the lease payments to be deducted from the lease liability in a number of ways – e.g. as ‘expected lease payments’ or as ‘equal periodic payments’ over the lease term. 

Effective date and transition

The amendments are effective for annual reporting periods beginning on or after 1 January 2024, with earlier application permitted.

Under IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, a seller-lessee will need to apply the amendments retrospectively to sale-and-leaseback transactions entered into or after the date of initial application of IFRS 16. This means that it will need to identify and re-examine sale-and-leaseback transactions entered into since implementation of IFRS 16 in 2019, and potentially restate those that included variable lease payments.

Next steps

To find out more about sale-and-leaseback accounting, read our forthcoming publication Leases – Sale and leasebacks

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