Sale-and-Leaseback
A sale-and-leaseback is a transaction in which the owner of an asset (the seller-lessee) transfers it to another party (the buyer-lessor) and leases it back.
Leasing
Explanation
Under both ASC 842 and IFRS 16, the key question is whether the transfer qualifies as a sale under the revenue standard, ASC 606 or IFRS 15, meaning control has passed to the buyer-lessor. Under ASC 842, a transfer is not a sale if the leaseback is classified as a finance lease by the seller-lessee (or sales-type lease by the buyer-lessor), or if the seller-lessee holds a repurchase option, unless the option is exercisable at fair value and substantially the same alternative assets are readily available.
If the transfer is a sale, the seller-lessee derecognizes the asset and accounts for the leaseback. Under ASC 842, it recognizes the full gain or loss, adjusted for off-market terms. Under IFRS 16, it recognizes only the gain or loss relating to the rights transferred to the buyer-lessor. The buyer-lessor accounts for the purchase and applies lessor accounting.
In a failed sale, the seller-lessee keeps the asset and records a financial liability. The buyer-lessor does not recognize the transferred asset; it records the amount paid as a receivable.
Why It Matters
The sale test decides whether the transaction is reported as a sale or as a financing. On the buyer-lessor side, lessor accounting can run in SAP RAR; on the seller-lessee side, the leaseback falls under lessee accounting in SAP CLM.
Related Terms
ASC 842 · IFRS 16 · Lessor vs. Lessee · Finance Lease · Right-of-Use Asset
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