Which statement best describes Sale-Leaseback Accounting?

• A. A form of accounting for transactions in which the seller-lessee records the sale, removes the property and related liabilities from its balance sheet, recognizes gain or loss from the sale and classifies the leaseback in accordance with proper lease accounting
• B. A method to record lease payments as revenue only at end of term
• C. A form of financing that keeps the asset on the balance sheet
• D. A way to lease back equipment without removing from books

Answer: (B)

Sale-leaseback involves selling an asset and then immediately leasing it back. The accounting treatment reflects both steps: first, the seller-lessee records the sale and derecognizes the asset and its related liabilities, recognizing any gain or loss on the sale. Then, the leaseback is accounted for under lease accounting, recording a right-of-use asset and a lease liability, with subsequent payments recognized over the lease term according to how the lease is classified (finance vs operating).

The statement describing lease payments as revenue only at the end of the term isn’t correct. Lease payments are recognized over time as they are due (as lease expenses for the lessee or lease revenue for the lessor), not solely at the end. Likewise, claiming the asset stays on the balance sheet or that you can lease back without removing the asset from books doesn’t fit the sale component, which triggers derecognition of the asset in the seller’s books.