Core TSIs : Lease Accounting : Lease accounting concepts : Sale and leaseback
Sale and leaseback
A sale and leaseback constitutes an arrangement where the seller of an asset leases back the same asset from the purchaser.
The lease arrangement is effective immediately after the sale of the asset with the amount of the payments and the time period specified. Essentially, the seller of the asset becomes the lessee and the purchaser becomes the lessor in this arrangement.
Diagram of sale and leasebackDiagram of sale and leaseback
A leaseback arrangement is useful when companies need to untie the cash invested in an asset for other investments, but the asset is still needed in order to operate. Leaseback deals can also provide the seller with additional tax deductions. The lessor benefits in that they will receive stable payments for a specified period of time.