Journal of Accounting and Management Information Systems (JAMIS)


Accounting treatment of sale and leaseback transactions

Supp/2006 ,   p259..269

Author(s):  
Cristina BUNEA-BONTAS


Keywords:   finance lease, operating lease, sale and leaseback, carrying amount, fair value, sale price

Abstract:  
The objective of the paper is to present the basic issues of the sale and leaseback transactions as a financing tool, a way for a company to free up capital invested in an owned operating property while continuing to be able to use that property. One key question is whether the transaction is a genuine sale, where all major risks and rewards are transferred to the buyer, while the seller continues to use the asset exposed to some, but not substantially all, of the risks and rewards. Alternatively, the transaction may be effected for financing, tax or some other special purposes only, and, in substance, the seller never disposes of the risks and rewards of owning the asset.
According to IAS 17 “Leases”, the accounting treatment of the sale and leaseback transactions depends upon the type of lease involved (finance or operating lease). Case studies present the appropriate accounting policies to apply in relation to the leaseback classification and to the treatment of any excess of sales proceeds over carrying amount, according to the standard. Given the complexity of the sale and leaseback transactions and because the information offered by IAS 17 is not very detailed, the paper also contains references to FAS 28 “Accounting for sales with leasebacks”. The contribution of the paper mainly concerns the accounting practice because nowadays several Romanian leasing companies have varied their offer, by including sale and leaseback transactions.


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