Accounting for Leases: Sale-Leaseback Transactions Involving Real Estate, Sales-Type Leases of Real Estate, Definition of the Lease Term, and Initial Direct Costs of Direct Financing Leases—an amendment of FASB Statements No. 13, 66, and 91 and a rescission of FASB Statement No. 26 and Technical Bulletin No.79-11 (Issued 5/88)
This Statement specifies the accounting by a seller-lessee for a sale-leaseback transaction involving real estate, including real estate with equipment. In addition, this Statement modifies the provisions of FASB Statement No. 13, Accounting for Leases,that define the lease term, the accounting by a lessor for sales-type leases of real estate that provide for the transfer of title, and the accounting for initial direct costs of direct financing leases. This Statement provides that:
A sale-leaseback transaction involving real estate, including real estate with equipment, must qualify as a sale under the provisions of FASB Statement No. 66, Accounting for Sales of Real Estate, as amended by this Statement, before it is appropriate for the seller-lessee to account for the transaction as a sale. If the transaction does not qualify as a sale under Statement 66, it should be accounted for by the deposit method or as a financing.
A sale-leaseback transaction involving real estate, including real estate with equipment, that includes any continuing involvement other than a normal leaseback in which the seller-lessee intends to actively use the property during the lease should be accounted for by the deposit method or as a financing.
The definition of lease term in paragraph 5(f) of Statement 13 is amended to include all renewal periods during which there will be a loan outstanding from the lessee to the lessor. This Statement also defines the term penalty as used in the lease term provisions of paragraph 5(f) of Statement 13 and thereby may cause lease terms to be longer than previously contemplated. Those modifications of the lease term provisions of Statement 13 apply to all leases, not just to sale- leaseback transactions involving real estate.
A lease involving real estate may not be classified as a sales-type lease unless the lease agreement provides for the transfer of title to the lessee at or shortly after the end of the lease term. Sales-type leases involving real estate should be accounted for under the provisions of Statement 66.
This Statement supersedes paragraph 40 of Statement 66 and rescinds FASB Statement No. 26, Profit Recognition on Sales-Type Leases of Real Estate, and FASB Technical Bulletin No. 79-11, Effect of a Penalty on the Term of a Lease. This Statement is effective for transactions entered into after June 30, 1988 with earlier application encouraged.
This Statement also amends paragraph 25 of FASB Statement No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, and amends Statement 13 to reflect the amendment intended by Statement 91. The effective date of that amendment is the effective date of Statement 91.