- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 8. Topics in Long-Term Liabilities and Equity
- Subject 4. Accounting and Reporting by the Lessor
CFA Practice Question
In a sale-and-leaseback transaction, the seller-lessee should recognize gain or loss from the sale immediately, regardless of whether the fair value of the leased asset is less than its book value. True or False?
Correct Answer: False
User Contributed Comments 13
| User | Comment |
|---|---|
| Gina | doesn't it depend whether it is a minor or substantial leaseback? |
| Gina | ignore above comment - it depends on PV/FV relationship,and hence NOT regardless of whether FV is less then PV. |
| steved333 | Sale-leaseback profits are amortized over the life of the lease or asset, whichever is shorter, right? |
| StanleyMo | recognition at inception is for lessor, not for lessee. |
| thekid | Someone please explain why. Thank you. |
| joywind | I think the seller in S/L should be the lessor instead of lessee. |
| arudkov | hmmm. looq @ q#9. profit for lessee(seller) immediately. pls help. |
| gulfa99 | answer is false. lessor should recognize the gain, not the lesee...please check notes. |
| JohnnyWu | tricky |
| 2014 | Yes, lessor only recognises gain |
| johntan1979 | Weird question... don't dwell too much on it. I mean, if lessOR records a gain, lessEE should record a loss. Otherwise, how does the lessEE account for that gain the lessOR incurred? |
| business | makes sense..Only the gain post gain in P&L if FV>BV. Otherwise amortise gain. Makes sense to avoid companies bookeeping huge profits by sale & lease back the asset and post huge profits in P&L. Remember sale & lease back you have the assets, and you only release equity but keep "possesion" of asset = borrowing using asset as security. |
| GBolt93 | really wish AN would explain T/F question answers like they do all the others. |