Economics and Reporting of Sale-Leaseback Transactions from the Seller-Lessee Perspective

Date of Submission

1993

Document Type

Thesis

Degree Name

Master of Science in Accounting

Department

Accounting

Advisor

Michael Rolleri

LCSH

Leases--Accounting

Call No. at the Univ. of New Haven Library

AS 36 .N29 Acc. 1993 no.2

Abstract

Sale-Leaseback assists businesses in their quest to augment expected utility by allocating resources to the most promising investment opportunities. Sale-leaseback provides the facility to businesses to generate cash flows by selling a particular asset and in the mean time retain the benefit of using the same asset. The Financial Accounting Standard Board (FASB) issued Statement No. 98, \"Accounting for leases: Sale-leaseback Transactions Involving Real Estate," in May V 1988 in order to standardize the accounting approach of sale-leaseback transactipns. This research paper endeavors to determine to what extent the newly issued standard has assisted businesses in standardizing the accounting approach of sale-leaseback transactions. Furthermore, it presents the economic and tax consequences of such transactions from a seller-lessee perspective. The main outcome of the paper is that statement 98 does enhance the presentation of financial data regarding the sale-leaseback in accounting statements by enforcing the criteria that would have to be followed step by step in similar types of sale-leaseback transactions. It does reduce the flexibility of structuring a transaction. However, the main flaw of this standard is that it is much more complicated and arduous to follow.

Comments

Sale-Leaseback assists businesses in their quest to augment expected utility by allocating resources to the most promising investment opportunities. Sale-leaseback provides the facility to businesses to generate cash flows by selling a particular asset and in the mean time retain the benefit of using the same asset. The Financial Accounting Standard Board (FASB) issued Statement No. 98, "Accounting for leases: Sale-leaseback Transactions Involving Real Estate," in May 1988 in order to standardize the accounting approach of sale-leaseback transactipns. This research paper endeavors to determine to what extent the newly issued standard has assisted businesses in standardizing the accounting approach of sale-leaseback transactions. Furthermore, it presents the economic and tax consequences of such transactions from a seller-lessee perspective. The main outcome of the paper is that statement 98 does enhance the presentation of financial data regarding the sale-leaseback in accounting statements by enforcing the criteria that would have to be followed step by step in similar types of sale-leaseback transactions. It does reduce the flexibility of structuring a transaction. However, the main flaw of this standard is that it is much more complicated and arduous to follow.

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