sale of property by the owner to a purchaser who then leases it to the former owner. The net effect of this transaction is similar to a loan to the former owner with the property serving as collateral. Any profit or loss on the sale is deferred and amortized in proportion to the amortization expense on the leased asset if a capital lease, or in proportion to the rental payments if this is an operating lease. However, when the fair value of the property at the time of the transaction is less than its book value, a loss will be recognized immediately, up to the amount of the difference between undepreciated cost and fair value.
sale of an asset, usually real estate, and agreement to lease it back from the purchaser on a long-term basis. In commercial finance, this type of financing arrangement strengthens the seller's balance sheet, because a capital asset is sold and converted into cash or a receivable.
It may, however, result in a forfeiting of depreciation and tax benefits. Typical sale-leaseback transactions may involve refinancing of a bank's headquarters building or other facilities. The sale is recorded as a one-time nonrecurring gain.
form of lease arrangement in which a company sells an asset to another party-usually an insurance or finance company, a leasing company, a limited partnership, or an institutional investor-in exchange for cash, then contracts to lease the asset for a specified term. Generally, any gain or loss on sale is recognized, except when the risks and rewards of ownership are not transferred; in that case the transaction is treated as though the "seller" merely arranged a loan.
form of lease arrangement in which a company sells an asset to another party-usually an insurance or finance company, a leasing company, a limited partnership, or an institutional investor-in exchange for cash, then contracts to lease the asset for a specified term. Typically, the asset is sold for its market value, so the lessee has really acquired capital that would otherwise have been tied up in a long-term asset. Such arrangements frequently have tax benefits for the lessee, although there is normally little difference in the effect on income between the lease payments and the interest payments that would have existed had the asset been purchased with borrowed money. A company generally opts for the sale and leaseback arrangement as an alternative to straight financing when the rate it would have to pay a lender is higher than the cost of rental or when it wishes to show less debt on its balance sheet (called off-balance-sheet financing).
