Sale and Leaseback

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Description of Sale and Leaseback. Explanation.




Definition Sale and Leaseback. Description.

A Sale and Leaseback is the sale of one or more assets to a third party that immediately leases it back to the original owner. This financial method can be used as a way to improve the financial position of the originating company by offloading assets to a buyer that is presumably interested in making a long-term secured investment. Also tax benefits may be associated with it. It results in a one-off profit benefit which will be reflected in the Operating Profit and Earnings per Share. Furthermore its aim may be to transfer ownership to a holding company while keeping proper track of the ongoing worth and profitability of the asset.

Typical assets involved in a Sale and Leaseback include buildings, apartments, industrial equipment, ships, airplanes, etc. Normally the seller remains in day-to-day operational control of the property.

Some leaseback arrangements allow the seller, or current lessee, the option to buy back the property at a future date. During the life of the leaseback, however, the buyer derives tax benefits from the arrangement, such as being credited for depreciation of the property.

Also called: Leaseback.

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How does the accounting circle look like? What are the classifications of assets and liabilities for each lessee and leessor?...

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