Challenging ASC 840 situations
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Challenging ASC 840 situations

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The first part of this series we cover the basics of sale-leasebacks that do not involve real estate and the current guidance for sale-leasebacks that involve real estate. Sale-leasebacks are very popular and offer a way to recover the capital spent on assets and improvements while continuing to occupy and/or control the property under a long-term lease. They are used as a vehicle to recapitalize, improve balance sheets, and fuel expansion efforts. The basic structure of a sale-leaseback is evident from its name—the transaction involves the transfer of an asset by an entity (the seller-lessee) to another entity (the buyer-lessor) and the leaseback of the same asset by the seller-lessee. FASB Accounting Standards Codification (FASB ASC) 840-40, Leases—Sale-Leaseback Transactions, provides the authoritative guidance for such transactions. In this report, we will cover the current guidance for sale-leasebacks that do not involve real estate.

In part II we address the accounting for build-to-suit leases and their relationship to sale-leasebacks. In build-to-suit lease transactions, various forms of lessee involvement during the construction period raise questions about whether the lessee is acting as an agent for the owner-lessor or is, in substance, the owner of the asset (for accounting purposes) during the construction period. As part of that involvement, the lessee also may be subject to certain contractual obligations (such as debt guarantees, obligations to fund cost overruns, lease commencement guarantees or obligations to purchase the construction project in certain situations). In many cases, the lessee is considered the accounting owner of an asset during the construction period because the lessee has substantially all of the construction period risks. The current accounting guidance for build-to-suit leases has long been criticized for being difficult to apply and punitive in nature.

In the final part of the series, we address build-to-suit lease transactions. In these kinds of transactions, various forms of lessee involvement during the construction period raise questions about whether the lessee is acting as an agent for the owner-lessor or is, in substance, the owner of the asset (for accounting purposes) during the construction period. As part of that involvement, the lessee also may be subject to certain contractual obligations (such as debt guarantees, obligations to fund cost overruns, lease commencement guarantees or obligations to purchase the construction project in certain situations). In many cases, the lessee is considered the accounting owner of an asset during the construction period because the lessee has substantially all of the construction period risks. The current accounting guidance for build-to-suit leases has long been criticized for being difficult to apply and punitive in nature.

Download the Report on accounting for sale leaseback transactions

File name: CPEA-SLB-without-real-estate-840.pdf

Download the Report on accounting for sale leaseback transactions involving real estate

File name: CPEA-SLB-with-real-estate-840.pdf

Download the Report on build to suit transactions

File name: CPEA-build-to-suit-840.pdf

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