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Sale and leaseback transactions
6.4.1 Accounting by the seller-lessee
The seller-lessee should derecognize the underlying asset and recognize a gain or loss on sale as
appropriate. If the transaction is at market terms, the presence of the leaseback does not affect the
recognition of a gain or loss on sale. Therefore, if a seller-lessee leases back an entire asset or a portion
of the asset (e.g., one floor of a multi-floor office building), the gain or loss generated from the sale is
not affected.
A seller-lessee should account for the gain or loss generated from a sale and leaseback transaction
consistent with the guidance in the revenue standard, similar to a sale without a leaseback.
See LG 6.4.4 for a discussion of accounting for a transaction entered into at off-market terms.
Example 6-6 and Example 6-7 illustrate how a seller-lessee would account for a gain or loss on sale
generated from a sale and leaseback transaction.
EXAMPLE 6-6
Sale and leaseback transactions – gain on sale
A seller-lessee enters into a sale and leaseback transaction of its corporate headquarters with a buyer-
lessor for a market value sales price of $20 million. The seller-lessee leases back the asset for ten years
in exchange for $200,000 per year in rental payments. The seller-lessee’s net carrying amount of the
asset at the date of sale is $15 million. Assume the leaseback is classified as an operating lease for
purposes of this example.
How should the seller-lessee account for the asset sale?
Analysis
The sale results in a gain on sale of $5 million ($20 million sales price - $15 million carrying amount of
asset). Since the sale and leaseback transaction is at market value and the leaseback is classified as an
operating lease, the presence of the leaseback does not impact the accounting for the sale; the seller-
lessee should recognize the gain on sale of $5 million in the period in which the sale is recognized.
EXAMPLE 6-7
Sale and leaseback transactions – loss on sale
Assume the same fact pattern as Example 6-6 except the seller-lessee’s net carrying amount of the
asset at the date of sale is $25 million.
How should the seller-lessee account for the asset sale?
Analysis
The sale results in a loss on sale of $5 million ($20 million sales price - $25 million carrying amount of
asset). Since the sale and leaseback transaction is at market value, the presence of the leaseback does
not impact the accounting for the sale; the seller-lessee should recognize the loss on sale of $5 million
in the period in which the sale is recognized (assuming an impairment of the asset was not required to
be recorded in an earlier period).
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