The amendments only impact a seller-lessee’s accounting for a sale and leaseback transaction that satisfies the requirements in IFRS 15 to be accounted for as a sale. These amendments do not change the accounting for leases other than those arising in a sale and leaseback transaction. Furthermore, the amendments apply to all sale and leaseback transactions, but they are expected to only affect sale and leaseback transactions that include variable lease payments that do not depend on an index or a rate (and are not in-substance fixed payments).

The amendments address the subsequent accounting for a seller-lessee only.

Without the amendments, a seller-lessee would subsequently account for a leaseback by applying the general subsequent measurement requirements for a lease liability. The general subsequent measurement requirements for a lease liability refer to ‘lease payments’ and ‘revised lease payments’. Variable lease payments that do not depend on an index or a rate do not meet the definition of ‘lease payments’. Hence, without the amendment, applying the general subsequent measurement requirements to a sale and leaseback with variable payments that do not depend on an index or a rate might have resulted in a seller-lessee recognising a gain on the right of use retained, in the event of a modification or change in leaseback term (as a consequence of remeasuring the lease liability to exclude variable lease payments because they do not meet the definition of ‘lease payment’), even though no transaction or event would have occurred to give rise to that gain.

The amendments also incorporate the example included in the IFRS IC’s June 2020 agenda decision on the measurement of the initial liability into the illustrative examples in IFRS 16. However, since entities should already be applying the agenda decision on initial measurement, we do not believe that this will change practice for initial measurement of sale and leaseback transactions.