CFA Practice Question

There are 520 practice questions for this study session.

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.
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