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Dear Sir
I hope this message finds you well
I wanted to do some hypothetical business with you, entity to entity:
I own a building worth 12000.
You want to buy the building from me (because it’s really really pretty)But you don’t have the funds to pay 12000 in one lump sum. so you pay in installments of 1000/month for 1 year.
BUT, when we started this deal, we had a clause in our contract that stated that you would be responsible for all repairs etc required after 1/1/1X, which is when you signed.
You subsequently recognize the building as a Non-current asset in your books.(My questions follow from here )
would that be classified in your company’s books as a Sale & Finance leaseback?
Is it a Finance Leaseback because you have responsibility for repairs etc?If I had responsibility for the building, meaning you would pay the equivalent of rent, that (sounds to me like it ) would be an Operating lease. Is that correct ?
In that case, what classifies as a Sale and Operating leaseback? You buy something but never own it ?
Am I actually asking a substance over form question and getting confused?
regards
JimI don’t see this as a leasing question! It’s a purchase on delayed / deferred terms
Dr TNCA $12,000
Cr Cash $1,000
Cr Liabilities / payables $11,000and, as each month goes by
Dr Liabilities / payables $1,000
Cr Cash $1,000“what classifies as a Sale and Operating leaseback?”
I own an asset with a fair value of $58,000 and wish to release the equity that is tied up in that asset
So I sell it, to you, for $50,000 and lease it back under operating lease terms where I pay you $1,000 per month for 5 years at the end of which time that asset is yours
I’ve sold it
I’ve leased it back
Under an operating lease
That’s how it classifies as a sale and operating lease backOK?
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