A sale-leaseback begins with a sale-control test. The owner transfers an asset and leases back a right to use it. Sale accounting is available only when the transfer qualifies as a sale under the Topic 606 control guidance applied through Topic 842.
Test sale before gain
Inspect repurchase options, transfer terms, payment terms, and control evidence before treating cash as sale proceeds. If a sale occurs, the seller-lessee derecognizes the asset, recognizes the retained ROU asset and lease liability, and records the sale result required by the model. Adjust off-market terms to fair value: excess sale price can be financing, while a below-market price can be a prepayment. If the transfer is not a sale, the seller-lessee keeps the asset and records a financial liability; the buyer-lessor records a financial asset.
For example, legal title and cash transfer, but the seller holds a substantive option to repurchase the asset. Those facts can prevent control from transferring. Calling the cash proceeds and recognizing a gain before resolving the option would reverse the required order.
Fair value and legal terms need qualified evidence owners. Read the sale gate in ASC 842-40-25-1, sale measurement in ASC 842-40-30-1, and failed-sale accounting in ASC 842-40-25-5.
Put the concept to work
Evaluate this concept
- Evaluate supplied transfer, repurchase, control, fair-value, and leaseback facts to distinguish a sale-leaseback from a financing and route off-market terms without treating cash or title as decisive.
Learning resources
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Build on these ideas
- Derecognition — Analyze
To evaluate this concept: Required. A failed sale does not derecognize the underlying asset.
- Transfer of control — Analyze
To evaluate this concept: Required. The transfer must satisfy the applicable sale-control requirements before sale accounting.