IAS 17, sale and finance leaseback, disclosures

Swisscom Ltd – Annual report – 31 December 2018

Industry: telecoms

2.2 Financial liabilities (extract)
Finance lease liabilities
Swisscom concluded two agreements in 2001 for the sale of real estate. At the same time, it entered into long-term agreements to lease back part of the real estate sold which, in part, qualify as finance leases. The gain realised on real estate classified as finance leases was deferred. As of 31 December 2018, the carrying amount of the deferred gains was CHF 134 million (prior year: CHF 146 million). The deferred gains are released to other income over the term of the individual leases. The effective interest rate of the finance lease liabilities was 6.05%. The minimum lease payments, financial liabilities and the future payment thereof, expressed in terms of their net present value, relating to these leaseback agreements are set out in the following table:


Accounting policies
Financial liabilities
Financial liabilities are initially recognised at fair value less direct transaction costs. In subsequent accounting periods, they are re-measured at amortised cost using the effective interest method.

Finance leases
A lease is recorded as a finance lease whenever substantially all of the risks and rewards incidental to ownership of an asset are passed on. The asset is initially recognised at the lower of its fair value and the present value of the minimum lease payments and is amortised over the asset’s estimated useful life or the lower contract term. The interest component of the lease payments is recognised as interest expense over the lease term computed on the basis of the effective interest method. Lease contracts for land and buildings are recorded separately if the lease payments can be reliably allocated. Gains on sale-and-leaseback transactions are deferred and released over the lease term to other income on a straight-line basis. Losses on sale-and-leaseback transactions are expensed immediately.