Accounting for Leases: Sale-Leaseback

Date of Submission


Document Type


Degree Name

Master of Science in Accounting




Michael Rolleri


Lease or buy decisions, Leases --Accounting.

Call No. at the Univ. of New Haven Library

AS 36 .N29 Acc. 1993 no.5


Lease accounting has been used in various industries, such as car, computer, furniture, equipment for production, and so on. Paragraph 1 of the Statement of Financial Accounting Standards (SFAS) No. 13 states, "a lease is defined as an agreement conveying the right to use property, plant, or equipment (land and/or depreciable assets) usually for a stated period of time. Leasing gives the lessees several advantages. If a person buys a property with financing, he needs to put down a percentage of the purchase price of the property as a down payment; and he negotiates with the financial institutions back and forth. He may pay too much money for the property, and/or may later find but that the property is not what he needs. On the other hand, he could avoid all these inconveniences and troubles if he leases the property. From the view point of the lessors, they also avoid the inconveniences and troubles.

The sale-leaseback transactions go beyond the boundary of the lease transactions. Paragraph 32 of SFAS No. 13 states, "sale-leaseback transactions involve the sale of property by the owner and a lease of the property back to the seller." A company could use the sale-leasebacks as a means to expand its plant and equipment or to release the financial pressure.

The classification, accounting and reporting of the sale-leaseback transactions involving real estate are more complicated than the sale-leaseback transactions. Different circumstances -- such as leases involving land and building, leases involving part of a building, and leases involving real estate and equipment — use different methods to classify the sale-leaseback transactions.

From the financial stand point, companies who sell real estate and lease the real estate back simultaneously not only can raise capital without going through the new-debt-issue process but also can pay off some of the debt with a small portion of payoff workers.