Selling Profit
Selling profit (or selling loss) is the profit a lessor earns on the "sale" element of a lease that transfers control or substantially all risks and rewards of the underlying asset – typically when a manufacturer or dealer uses leasing as a way to sell its products.
Leasing
Explanation
It is the difference between the amount recognized for the asset at commencement and its carrying amount, excluding the unguaranteed residual the lessor expects to get back.
• ASC 842: for sales-type leases, a manufacturer or dealer presents revenue at the lower of the asset’s fair value and the lease receivable plus any lease payments prepaid by the lessee, and cost of goods sold at the carrying amount less the unguaranteed residual asset. Selling profit or loss is recognized at commencement. For direct financing leases, selling profit is deferred and recognized over the lease term through the net investment; a selling loss is recognized immediately. If collectibility is not probable, no selling profit is recognized at commencement.
• IFRS 16: a manufacturer or dealer lessor in a finance lease recognizes selling profit or loss at commencement. Revenue is the asset's fair value or, if lower, the present value of the lease payments at a market rate. If artificially low interest rates are quoted, selling profit is restricted to what would apply at a market rate.
Why It Matters
Selling profit moves revenue upfront. In SAP, the asset retirement in Asset Accounting (FI-AA) and the revenue and net investment in SAP RAR must reflect the same classification per accounting principle.
Related Terms
Sales-Type Lease · Direct Financing Lease · Net Investment in the Lease · Finance Lease · Initial Direct Costs · SAP Asset Accounting (FI-AA)
Related Articles
• Sales-Type Leases: Asset Derecognition and Selling Profit in SAP
• IFRS 16 vs. ASC 842: Key Differences for Lessors
• Operating vs. Finance Lease: How Classification Drives Accounting
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