CFA Practice Question

CFA Practice Question

If a sale-leaseback lease meets the criteria for treatment as a capital lease, how should the lessor account for a gain on its sale?
A. The lessor would recognize the gain at the time of the sale.
B. The lessor would defer the gain on its sale and amortize it over the lease term.
C. The lessor would amortize the gain on its sale over the estimated useful life of the asset.
Explanation: Because it is a long-term arrangement, amortizing the gain over the life of the lease would best meet the matching principal.

User Contributed Comments 9

User Comment
danlan Is it a long-term arrangement?
jackwez Yes.. a capital lease essentially is a sale so you record the gain like you would if you sold anything else - at the time of recognition.
thekapila well this is only required by IAS rule.. GAAP permits to recognise profit at inception.
onehud There is a difference between sales-type and sale-leaseback. Sale-type, recognize profit immediately, sales-leaseback defer the gain and amoritize
julescruis thanks onehud
Sandar thanks onehud
madelinee sales-type and sales-lease back. thanks.
michaeloa3 I didnt find anyting in text about sale leaseback transactions, is this something we need to know?
nfressell2 It certainly appears that way
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