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Sale and leaseback transactions
liability – $560,000 net carrying amount). The date of transfer of control is considered the lease
commencement date. However, if the seller-lessee classified the lease as a finance lease, no sale has
occurred and the transaction would continue to be accounted for as a failed sale and leaseback. See LG
6.3.4 for information on the impact of lease classification on qualification as a sale.
6.5.1.3 Accounting by the seller-lessee when the leaseback is for a portion of the asset
When a failed sale and leaseback transaction involves a seller-lessee that leases back only a portion of
the asset, there are additional accounting considerations. Since the asset is not derecognized by the
seller-lessee, there may be leases associated with other portions of the asset. These leases must be
accounted for by the seller-lessee, and rental income should be imputed for the other leases, offset by
additional imputed debt service.
Example 6-15 illustrates how a seller-lessee should account for a leaseback of a portion of an
underlying asset when there are other leases in place.
EXAMPLE 6-15
Seller-lessee sells an asset and leases back a portion of the asset
A seller-lessee sells a shopping center in which it occupies the anchor store to a buyer-lessor and leases
back only its store location. Consider the following facts about this transaction:
□ The shopping center is one legal asset
□ The shopping center is sold at fair value and the leaseback rentals reflect market rental rates
□ The seller-lessee has a repurchase option
□ There are no alternative assets that are substantially the same and readily available in the
marketplace
How should the seller-lessee account for the sale and leaseback of the building?
Analysis
Because the seller-lessee has a repurchase option and there are no alternative assets that are
substantially the same and readily available in the marketplace, the transaction would not qualify for
sale accounting. It should be accounted for as a financing transaction. The net carrying amount of the
asset would remain on the seller-lessee’s books and the seller-lessee would continue to record annual
depreciation expense.
The cash proceeds received from the buyer-lessor would be recorded as a financial liability. The rental
payments made to the buyer-lessor for use of the anchor store would be re-characterized as debt
service on the financing. In addition, since the seller-lessee does not have use of the other stores
(which are retained on its balance sheet), it should impute rental income for the lease of the stores
offset by additional imputed debt service.
The transaction should not be accounted for as a partial sale and partial financing.
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