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Hi Sir
This is a question in BPP kit–
How will this effect gearing:
‘Selling’ an asset under a sale and leaseback agreement
I think it will increase gearing ratio since if it’s not a real sale, we should recognize the transfer proceeds as a liability, thus increase the gearing ratio. Would you please kindly correct me if I’m wrong, thank you so much!Hi,
You’re correct. If there is not a real sale then we retain the asset in our books but the liabilities will increase as the liabilities increase, hence increasing the amount of debt and the level of gearing.
Thanks
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