CPA Study Group
Why does it say its a financing lease by both parties but in the explanation it says the the lessor is a sells type lease?
Per ASC 842-10-25-2 a seller-lessee shall classify a lease as a FINANCE LEASE and a buyer-lessor shall classify a lease as a SALES-TYPE LEASE because the lease transfers ownership of the underlying asset to the lessee by the end of the lease term.
Per ASC 842-40-25-5 if the transfer of the asset is not a sale (see 842-40-21-1 through 3) the seller-lessee does not derecognize the asset and accounts for amounts received as a financial liability and the buyer-lessor does not recognize the transferred asset and accounts for amounts paid as a receivable.
The result is similar to a collateralized loan, the buyer-lessor has a receivable and the seller-lessee has a liability.