# ASC 842-40: Leases — Sale and Leaseback Transactions Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/842/40/) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T01:57:35.813Z to 2026-09-10T01:57:59.856Z Record version: sha256:7444bd274af2ec6ceac557613bc51cf1d1b4ff44d31a796456445a29c39b18a6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-40: Leases — Sale and Leaseback Transactions ### Machine-generated study aids ```json { "summary": "ASC 842-40 governs sale and leaseback transactions, in which a seller-lessee transfers an asset to a buyer-lessor and leases it back. The threshold question is whether the transfer qualifies as a sale under Topic 606's control-transfer guidance; if it does, the seller-lessee derecognizes the asset, recognizes the sale at the transaction price, and accounts for the leaseback under 842-20, while the buyer-lessor accounts for the purchase under other Topics and the lease under 842-30. If the transfer is not a sale (e.g., the leaseback is a finance/sales-type lease or there is a non-fair-value repurchase option), the transaction is a failed sale accounted for as a financing by both parties.", "key_points": [ "Whether a transfer is a sale is determined using Topic 606's contract-existence guidance (606-10-25-1 through 25-8) and the transfer-of-control guidance in 606-10-25-30 (842-40-25-1).", "A leaseback alone does not prevent the buyer-lessor from obtaining control, but the buyer-lessor is deemed not to have obtained control if the leaseback would be classified as a finance lease or sales-type lease (842-40-25-2).", "A seller-lessee repurchase option precludes sale accounting unless (a) the exercise price is the fair value of the asset at exercise and (b) substantially the same alternative assets are readily available in the marketplace (842-40-25-3).", "If a sale occurs, the seller-lessee recognizes the transaction price and derecognizes the asset's carrying amount and applies 842-20 to the leaseback; the buyer-lessor applies other Topics to the purchase and 842-30 to the lease (842-40-25-4).", "If the transfer is not a sale, the seller-lessee keeps the asset and records proceeds as a financial liability while the buyer-lessor records a receivable (842-40-25-5), with the seller-lessee imputing an interest rate so interest does not exceed the payments and the asset's carrying amount does not exceed the liability when control transfers (842-40-30-6).", "Off-market terms are adjusted by comparing sale price to fair value or PV of lease payments to PV of market rents; an excess sale price is a prepayment of rent and a reduction is additional financing from the buyer-lessor (842-40-30-1 through 30-3), except for related party leases (842-40-30-4).", "If a lessee controls an asset under construction before the commencement date (indicators in 842-40-55-5, e.g., a right to obtain the partially constructed asset, legal ownership, or control of the land for substantially all the improvements' economic life), the arrangement is within this Subtopic; the seller-lessee must also disclose the main terms and any gains or losses separately (842-40-50-2)." ], "categories": [ "Leases", "Recognition", "Derecognition", "Revenue" ], "audience_level": "intermediate", "student_note": "Exams love the two trip-wires that kill sale accounting: a leaseback classified as a finance/sales-type lease and a fixed-price repurchase option. A common misunderstanding is that a failed sale means no lease accounting at all — in fact the seller-lessee keeps the asset and books a financing liability, and lease accounting begins only later if and when control transfers (e.g., when the repurchase option expires).", "related_topics": [ "842-10", "842-20", "842-30", "606-10", "360", "835-30" ], "key_concepts": [ "sale and leaseback", "transfer of control", "failed sale financing", "repurchase option", "off-market terms", "lessee control during construction", "seller-lessee", "buyer-lessor" ] } ``` Source downloaded (UTC): 2026-09-10T01:57:35.813Z to 2026-09-10T01:57:35.813Z Record version: sha256:009576875b61227dd752d2225f1c4e3cf99a0b754129e435926d69a44de0f4c2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-40-00: 00 Status [Read section](https://asc.understandingaccounting.org/asc/842/40/#00-status) SEC content: no ##### [842-40-00-1](https://asc.understandingaccounting.org/asc/842/40/#842-40-00-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:35.813Z to 2026-09-10T01:57:35.813Z Record version: sha256:8bc6671d0e061ec6bd26c9a27162d49046059727d43a7673868c13c1a9bde62c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
Commencement Date of the Lease (Commencement Date)AddedAccounting Standards Update No. 2016-0202/25/2016
ContractAddedAccounting Standards Update No. 2016-0202/25/2016
Direct Financing LeaseAmendedAccounting Standards Update No. 2021-0507/19/2021
Direct Financing LeaseAddedAccounting Standards Update No. 2016-0202/25/2016
Fair Value (2nd def.)AddedAccounting Standards Update No. 2016-0202/25/2016
Finance LeaseAddedAccounting Standards Update No. 2016-0202/25/2016
LeaseAddedAccounting Standards Update No. 2016-0202/25/2016
Lease PaymentsAddedAccounting Standards Update No. 2016-0202/25/2016
Lease TermAddedAccounting Standards Update No. 2016-0202/25/2016
LesseeAddedAccounting Standards Update No. 2016-0202/25/2016
LessorAddedAccounting Standards Update No. 2016-0202/25/2016
Market ParticipantsAddedAccounting Standards Update No. 2016-0202/25/2016
Operating LeaseAddedAccounting Standards Update No. 2016-0202/25/2016
Orderly TransactionAddedAccounting Standards Update No. 2016-0202/25/2016
Related PartiesAddedAccounting Standards Update No. 2016-0202/25/2016
Residual Value GuaranteeAddedAccounting Standards Update No. 2016-0202/25/2016
Sales-Type LeaseAmendedAccounting Standards Update No. 2021-0507/19/2021
Sales-Type LeaseAddedAccounting Standards Update No. 2016-0202/25/2016
SubleaseAddedAccounting Standards Update No. 2016-0202/25/2016
Underlying AssetAddedAccounting Standards Update No. 2016-0202/25/2016
842-40-05-1AddedAccounting Standards Update No. 2016-0202/25/2016
842-40-15-1 through 15-3
AddedAccounting Standards Update No. 2016-0202/25/2016
842-40-25-1 through 25-5
AddedAccounting Standards Update No. 2016-0202/25/2016
842-40-30-1 through 30-6
AddedAccounting Standards Update No. 2016-0202/25/2016
842-40-30-6AmendedAccounting Standards Update No. 2018-1007/18/2018
842-40-50-1AmendedAccounting Standards Update No. 2021-0911/11/2021
842-40-50-1AddedAccounting Standards Update No. 2016-0202/25/2016
842-40-50-2AmendedAccounting Standards Update No. 2021-0911/11/2021
842-40-50-2AddedAccounting Standards Update No. 2016-0202/25/2016
842-40-55-1 through 55-44
AddedAccounting Standards Update No. 2016-0202/25/2016
842-40-55-33AmendedAccounting Standards Update No. 2018-1007/18/2018
Source downloaded (UTC): 2026-09-10T01:57:38.076Z to 2026-09-10T01:57:38.076Z Record version: sha256:d7d2b7344fe291496a9d51515c3c11cb3674235d8681cc420bd0cbea4385c0c2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-40-05: 05 Overview and Background [Read section](https://asc.understandingaccounting.org/asc/842/40/#05-overview-and-background) SEC content: no ##### [842-40-05-1](https://asc.understandingaccounting.org/asc/842/40/#842-40-05-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:38.076Z to 2026-09-10T01:57:38.076Z Record version: sha256:336458879654c072e77721ef142fc8254d998f8f40827795bad88be22f77f50b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic addresses accounting for sale and leaseback transactions when a [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") has been accounted for in accordance with Subtopic 842-10 and either Subtopic 842-20 or Subtopic 842-30. Source downloaded (UTC): 2026-09-10T01:57:40.869Z to 2026-09-10T01:57:40.869Z Record version: sha256:dcbf1bfe3a648e6e04267613821be939ecbb105b41776cce3c14c457368792ee Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-40-15: 15 Scope and Scope Exceptions [Read section](https://asc.understandingaccounting.org/asc/842/40/#15-scope-and-scope-exceptions) SEC content: no ##### [842-40-15-1](https://asc.understandingaccounting.org/asc/842/40/#842-40-15-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:40.869Z to 2026-09-10T01:57:40.869Z Record version: sha256:59ac04d4f149d94f2f3f954b85f5e6aa16cd35b1ab55ae4ba091edaf238388fe Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic; see Section 842-10-15. ##### [842-40-15-2](https://asc.understandingaccounting.org/asc/842/40/#842-40-15-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:40.869Z to 2026-09-10T01:57:40.869Z Record version: sha256:4d9d9180180726faa815939d3de93e144fc741c9d6664d5e3bf381102146e8eb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity (the seller-lessee) transfers an asset to another entity (the buyer-lessor) and leases that asset back from the buyer-lessor, both the seller-lessee and the buyer-lessor shall account for the transfer [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") and the [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") in accordance with Sections 842-40-25, 842-40-30, and 842-40-50. ##### [842-40-15-3](https://asc.understandingaccounting.org/asc/842/40/#842-40-15-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:40.869Z to 2026-09-10T01:57:40.869Z Record version: sha256:eacf1a6bfc2b0e5af6eb65298222e64d1004e1200a2c2db8711d5e577aa5c74d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraphs [842-40-55-1 through 55-21](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-1) for implementation guidance on the scope of this Subtopic. See Example 3 (paragraphs [842-40-55-39 through 55-44](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-39) ) for an illustration of the scope of this Subtopic. Source downloaded (UTC): 2026-09-10T01:57:45.371Z to 2026-09-10T01:57:45.371Z Record version: sha256:c746684d649f1cf0ab25dc22b481823e36808cc54df9c5ed4eb9a1386b0ffa61 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-40-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/842/40/#25-recognition) SEC content: no #### Determining Whether the Transfer of the Asset Is a Sale ##### [842-40-25-1](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:45.371Z to 2026-09-10T01:57:45.371Z Record version: sha256:76f67e278fa607243c521c88ac3ad3459e89d998625cb1ce794c84a4f1d68e91 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall apply the following requirements in Topic 606 on revenue from [contracts](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") with customers when determining whether the transfer of an asset shall be accounted for as a sale of the asset: 1. a Paragraphs [606-10-25-1 through 25-8](https://asc.understandingaccounting.org/asc/606/10/#606-10-25-1) on the existence of a contract 2. b Paragraph [606-10-25-30](https://asc.understandingaccounting.org/asc/606/10/#606-10-25-30) on when an entity satisfies a performance obligation by transferring control of an asset. ##### [842-40-25-2](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:45.371Z to 2026-09-10T01:57:45.371Z Record version: sha256:213efa2b2e6902f668c167a4e89ebb16d99d0c48bc853c6cc567eccccf1c2eb2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The existence of a leaseback (that is, a seller-lessee's right to use the [underlying asset](https://asc.understandingaccounting.org/glossary/u/#underlying-asset "An asset that is the subject of a lease for which a right to use that asset has been conveyed to a lessee. The underlying asset could be a physically distinct portion of a single asset.") for a period of time) does not, in isolation, prevent the buyer-lessor from obtaining control of the asset. However, the buyer-lessor is not considered to have obtained control of the asset in accordance with the guidance on when an entity satisfies a performance obligation by transferring control of an asset in Topic 606 if the leaseback would be classified as a [finance lease](https://asc.understandingaccounting.org/glossary/f/#finance-lease "From the perspective of a lessee, a lease that meets one or more of the criteria in paragraph 842-10-25-2.") or a [sales-type lease](https://asc.understandingaccounting.org/glossary/s/#sales-type-lease "From the perspective of a lessor, a lease that meets one or more of the criteria in paragraph 842-10-25-2 and is not an operating lease in accordance with paragraph 842-10-25-3A."). ##### [842-40-25-3](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:45.371Z to 2026-09-10T01:57:45.371Z Record version: sha256:820ab1f74b3ff390ff24bb031781a77ca675b7f1bbef7f499940329a78b28ecc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An option for the seller-lessee to repurchase the asset would preclude accounting for the transfer of the asset as a sale of the asset unless both of the following criteria are met: 1. a The exercise price of the option is the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") of the asset at the time the option is exercised. 2. b There are alternative assets, substantially the same as the transferred asset, readily available in the marketplace. #### Transfer of the Asset Is a Sale ##### [842-40-25-4](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:45.371Z to 2026-09-10T01:57:45.371Z Record version: sha256:a5ff1f76476623a56dd2ca619b5817f0ff4fcf32791e60ed42fa34faacad9235 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the transfer of the asset is a sale in accordance with paragraphs [842-40-25-1 through 25-3](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-1) , both of the following apply: 1. a The seller-lessee shall: 1. 1 Recognize the transaction price for the sale at the point in time the buyer-lessor obtains control of the asset in accordance with paragraph [606-10-25-30](https://asc.understandingaccounting.org/asc/606/10/#606-10-25-30) in accordance with the guidance on determining the transaction price in paragraphs [606-10-32-2 through 32-27](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-2) 2. 2 Derecognize the carrying amount of the [underlying asset](https://asc.understandingaccounting.org/glossary/u/#underlying-asset "An asset that is the subject of a lease for which a right to use that asset has been conveyed to a lessee. The underlying asset could be a physically distinct portion of a single asset.") 3. 3 Account for the [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") in accordance with Subtopic 842-20. 2. b The buyer-lessor shall account for the purchase in accordance with other Topics and for the lease in accordance with Subtopic 842-30. #### Transfer of the Asset Is Not a Sale ##### [842-40-25-5](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:45.371Z to 2026-09-10T01:57:45.371Z Record version: sha256:6278c5de82b0106f1231e3f41fb8b736ddb3d87cf72cc122ee7eec21760600db Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the transfer of the asset is not a sale in accordance with paragraphs [842-40-25-1 through 25-3](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-1) , both of the following apply: 1. a The seller-lessee shall not derecognize the transferred asset and shall account for any amounts received as a financial liability in accordance with other Topics. 2. b The buyer-lessor shall not recognize the transferred asset and shall account for the amounts paid as a receivable in accordance with other Topics. Source downloaded (UTC): 2026-09-10T01:57:48.887Z to 2026-09-10T01:57:48.887Z Record version: sha256:7431503c4b832d7131977e41a8e23617bbc44d50ba630ce15d657e937a619b90 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-40-30: 30 Initial Measurement [Read section](https://asc.understandingaccounting.org/asc/842/40/#30-initial-measurement) SEC content: no #### Transfer of the Asset Is a Sale ##### [842-40-30-1](https://asc.understandingaccounting.org/asc/842/40/#842-40-30-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:48.887Z to 2026-09-10T01:57:48.887Z Record version: sha256:95701c557e78c519952b8cb52eaa4d9df4f02e0590225fb083c7baa16e640f21 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity shall determine whether a sale and leaseback transaction is at [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") on the basis of the difference between either of the following, whichever is more readily determinable: 1. a The sale price of the asset and the fair value of the asset 2. b The present value of the [lease payments](https://asc.understandingaccounting.org/glossary/l/#lease-payments "See paragraph 842-10-30-5 for what constitutes lease payments from the perspective of a lessee and a lessor.") and the present value of market rental payments. ##### [842-40-30-2](https://asc.understandingaccounting.org/asc/842/40/#842-40-30-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:48.887Z to 2026-09-10T01:57:48.887Z Record version: sha256:05fb83c8cc29a954dc411898315e818aa987e552d3f8e744cdf1be1ba4977bd8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the sale and leaseback transaction is not at fair value, the entity shall adjust the sale price of the asset on the same basis the entity used to determine that the transaction was not at fair value in accordance with paragraph [842-40-30-1](https://asc.understandingaccounting.org/asc/842/40/#842-40-30-1). The entity shall account for both of the following: 1. a Any increase to the sale price of the asset as a prepayment of rent 2. b Any reduction of the sale price of the asset as additional financing provided by the buyer-lessor to the seller-lessee. The seller-lessee and the buyer-lessor shall account for the additional financing in accordance with other Topics. ##### [842-40-30-3](https://asc.understandingaccounting.org/asc/842/40/#842-40-30-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:48.887Z to 2026-09-10T01:57:48.887Z Record version: sha256:0c5420ce05564a69e28ee8445114eab790e094cae79cb47ec5c6ab99da63b2a4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A sale and leaseback transaction is not off market solely because the sale price or the lease payments include a variable component. In determining whether the sale and leaseback transaction is at fair value, the entity should consider those variable payments it reasonably expects to be entitled to (or to make) on the basis of all of the information (historical, current, and forecast) that is reasonably available to the entity. For a seller-lessee, this would include estimating any variable consideration to which it expects to be entitled in accordance with paragraphs [606-10-32-5 through 32-9](https://asc.understandingaccounting.org/asc/606/10/#606-10-32-5) . ##### [842-40-30-4](https://asc.understandingaccounting.org/asc/842/40/#842-40-30-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:48.887Z to 2026-09-10T01:57:48.887Z Record version: sha256:79daf7bcd439154e4ef242d483a4bd45c36f77c52cb605588bf556baefab987b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the transaction is a related party [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration."), an entity shall not make the adjustments required in paragraph [842-40-30-2](https://asc.understandingaccounting.org/asc/842/40/#842-40-30-2), but shall provide the required disclosures as discussed in paragraphs [842-20-50-7](https://asc.understandingaccounting.org/asc/842/20/#842-20-50-7) and [842-30-50-4](https://asc.understandingaccounting.org/asc/842/30/#842-30-50-4). ##### [842-40-30-5](https://asc.understandingaccounting.org/asc/842/40/#842-40-30-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:48.887Z to 2026-09-10T01:57:48.887Z Record version: sha256:35ed03e1bddbf8f3f260bb89c96cc0d0b07a77304c29484499f369b0dacde2c4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Examples 1 and 2 (paragraphs [842-40-55-22 through 55-38](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-22) ) for illustrations of the requirements for a sale and leaseback transaction. #### Transfer of the Asset Is Not a Sale ##### [842-40-30-6](https://asc.understandingaccounting.org/asc/842/40/#842-40-30-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:48.887Z to 2026-09-10T01:57:48.887Z Record version: sha256:52e1f5d9148071eb2403222ac9be62db3afcf6aed98e800549cef5d33d61e477 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The guidance in paragraph [842-40-25-5](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-5) notwithstanding, the seller-lessee shall adjust the interest rate on its financial liability as necessary to ensure that both of the following apply: 1. a Interest on the financial liability is not greater than the payments on the financial liability over the shorter of the [lease term](https://asc.understandingaccounting.org/glossary/l/#lease-term "The noncancellable period for which a lessee has the right to use an underlying asset, together with all of the following: Periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option Periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option Periods covered by an option to extend (or not to terminate) the lease in which exercise of the option is controlled by the lessor.") and the term of the financing. The term of the financing may be shorter than the lease term because the transfer of an asset that does not qualify as a sale initially may qualify as a sale at a point in time before the end of the lease term. 2. b The carrying amount of the asset does not exceed the carrying amount of the financial liability at the earlier of the end of the lease term or the date at which control of the asset will transfer to the buyer-lessor (for example, the date at which a repurchase option expires if that date is earlier than the end of the lease term). Source downloaded (UTC): 2026-09-10T01:57:52.852Z to 2026-09-10T01:57:52.852Z Record version: sha256:a5355a5803da93a42ba4eb48f8fdc27404887a8b5281183025d22b4ac4a89976 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-40-50: 50 Disclosure [Read section](https://asc.understandingaccounting.org/asc/842/40/#50-disclosure) SEC content: no ##### [842-40-50-1](https://asc.understandingaccounting.org/asc/842/40/#842-40-50-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:52.852Z to 2026-09-10T01:57:52.852Z Record version: sha256:851b57d5e67e16c37f0992a98ec97026ea464e7bc95d6e3eb28e1e8927926389 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a seller-lessee or a buyer-lessor enters into a sale and leaseback transaction that is accounted for in accordance with paragraphs [842-40-25-4](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-4) and [842-40-30-1 through 30-3](https://asc.understandingaccounting.org/asc/842/40/#842-40-30-1) , it shall provide the disclosures required in paragraphs [842-20-50-1 through 50-10](https://asc.understandingaccounting.org/asc/842/20/#842-20-50-1) for a seller-lessee or paragraphs [842-30-50-1 through 50-13](https://asc.understandingaccounting.org/asc/842/30/#842-30-50-1) for a buyer-lessor. ##### [842-40-50-2](https://asc.understandingaccounting.org/asc/842/40/#842-40-50-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:52.852Z to 2026-09-10T01:57:52.852Z Record version: sha256:f1fa147eaaace317b7ca70e521f6ac4e944943d8b7b6706f97292ce281fa6d1b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In addition to the disclosures required by paragraphs [842-20-50-1 through 50-10](https://asc.understandingaccounting.org/asc/842/20/#842-20-50-1) , a seller-lessee that enters into a sale and leaseback transaction shall disclose both of the following: 1. a The main terms and conditions of that transaction 2. b Any gains or losses arising from the transaction separately from gains or losses on disposal of other assets. Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:58be0696b961b48d593d9a722d542df207739cbc66eeb863d563de1a73621368 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 842-40-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/842/40/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [842-40-55-1](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:5f92875179c8f15e6f9260fb75381d7f585019cc8ca6b956af3bccbb1a713c07 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.") may obtain legal title to the [underlying asset](https://asc.understandingaccounting.org/glossary/u/#underlying-asset "An asset that is the subject of a lease for which a right to use that asset has been conveyed to a lessee. The underlying asset could be a physically distinct portion of a single asset.") before that legal title is transferred to the [lessor](https://asc.understandingaccounting.org/glossary/l/#lessor "An entity that enters into a contract to provide the right to use an underlying asset for a period of time in exchange for consideration.") and the asset is leased to the lessee. If the lessee controls the underlying asset (that is, it can direct its use and obtain substantially all of its remaining benefits) before the asset is transferred to the lessor, the transaction is a sale and leaseback transaction that is accounted for in accordance with this Subtopic. ##### [842-40-55-2](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:aaf58ad6a11146e5741b5a32902c779cd785758bcf0531116e5ad016e42b2fe3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the lessee obtains legal title, but does not obtain control of the underlying asset before the asset is transferred to the lessor, the transaction is not a sale and leaseback transaction. For example, this may be the case if a manufacturer, a lessor, and a lessee negotiate a transaction for the purchase of an asset from the manufacturer by the lessor, which in turn is leased to the lessee. For tax or other reasons, the lessee might obtain legal title to the underlying asset momentarily before legal title transfers to the lessor. In this case, if the lessee obtains legal title to the asset but does not control the asset before it is transferred to the lessor, the transaction is accounted for as a purchase of the asset by the lessor and a [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") between the lessor and the lessee. ##### [842-40-55-3](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:61572ebbad6938d1573bf6f24346381848076d8b567224d73dc116ab70ac20b7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity may negotiate a [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") before the [underlying asset](https://asc.understandingaccounting.org/glossary/u/#underlying-asset "An asset that is the subject of a lease for which a right to use that asset has been conveyed to a lessee. The underlying asset could be a physically distinct portion of a single asset.") is available for use by the [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration."). For some leases, the underlying asset may need to be constructed or redesigned for use by the lessee. Depending on the terms and conditions of the [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations."), a lessee may be required to make payments relating to the construction or design of the asset. ##### [842-40-55-4](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:7d2418eaf426c3fedcb9de7e173f4e033528866dfbbfbf412f02b791a630f12a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a lessee incurs costs relating to the construction or design of an underlying asset before the [commencement date](https://asc.understandingaccounting.org/glossary/c/#commencement-date-of-the-lease-commencement-date "The date on which a lessor makes an underlying asset available for use by a lessee. See paragraphs 842-10-55-19842-10-55-20842-10-55-21 for implementation guidance on the commencement date."), the lessee should account for those costs in accordance with other Topics, for example, Topic 330 on inventory or Topic 360 on property, plant, and equipment. Costs relating to the construction or design of an underlying asset do not include payments made by the lessee for the right to use the underlying asset. Payments for the right to use the underlying asset are [lease payments](https://asc.understandingaccounting.org/glossary/l/#lease-payments "See paragraph 842-10-30-5 for what constitutes lease payments from the perspective of a lessee and a lessor."), regardless of the timing of those payments or the form of those payments (for example, a lessee might contribute construction materials for the asset under construction). ##### [842-40-55-5](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:834bccec682f4167d7209340529f36a3fbabda5637e87a43f0cc7b892dfc6f92 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the lessee controls the underlying asset being constructed before the commencement date, the transaction is accounted for in accordance with this Subtopic. Any one (or more) of the following would demonstrate that the lessee controls an underlying asset that is under construction before the commencement date: 1. a The lessee has the right to obtain the partially constructed underlying asset at any point during the construction period (for example, by making a payment to the [lessor](https://asc.understandingaccounting.org/glossary/l/#lessor "An entity that enters into a contract to provide the right to use an underlying asset for a period of time in exchange for consideration.")). 2. b The lessor has an enforceable right to payment for its performance to date, and the asset does not have an alternative use (see paragraph [842-10-55-7](https://asc.understandingaccounting.org/asc/842/10/#842-10-55-7)) to the owner-lessor. In evaluating whether the asset has an alternative use to the owner-lessor, an entity should consider the characteristics of the asset that will ultimately be leased. 3. c The lessee legally owns either: 1. 1 Both the land and the property improvements (for example, a building) that are under construction 2. 2 The non-real-estate asset (for example, a ship or an airplane) that is under construction. 4. d The lessee controls the land that property improvements will be constructed upon (this includes where the lessee enters into a transaction to transfer the land to the lessor, but the transfer does not qualify as a sale in accordance with paragraphs [842-40-25-1 through 25-3](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-1) ) and does not enter into a lease of the land before the beginning of construction that, together with renewal options, permits the lessor or another unrelated third party to lease the land for substantially all of the economic life of the property improvements. 5. e The lessee is leasing the land that property improvements will be constructed upon, the term of which, together with lessee renewal options, is for substantially all of the economic life of the property improvements, and does not enter into a [sublease](https://asc.understandingaccounting.org/glossary/s/#sublease "A transaction in which an underlying asset is re-leased by the lessee (or intermediate lessor) to a third party (the sublessee) and the original (or head) lease between the lessor and the lessee remains in effect.") of the land before the beginning of construction that, together with renewal options, permits the lessor or another unrelated third party to sublease the land for substantially all of the economic life of the property improvements. The list of circumstances above in which a lessee controls an underlying asset that is under construction before the commencement date is not all inclusive. There may be other circumstances that individually or in combination demonstrate that a lessee controls an underlying asset that is under construction before the commencement date. ##### [842-40-55-6](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:dd5ddb8e826338e00559ad9b79c44d03976bdba54e87bc981f66c8a98fe25f41 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Example 3 (paragraphs [842-40-55-39 through 55-44](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-39) ) for an illustration of the scope of this Subtopic. ##### [842-40-55-7](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:0f1e23b488d33b449554537df0d445a7ebb015392025ef4e298c61f1bc7c1f52 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A provision that requires [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.") indemnifications for preexisting environmental contamination does not, on its own, mean that the lessee controlled the [underlying asset](https://asc.understandingaccounting.org/glossary/u/#underlying-asset "An asset that is the subject of a lease for which a right to use that asset has been conveyed to a lessee. The underlying asset could be a physically distinct portion of a single asset.") before the [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") commenced regardless of the likelihood of loss resulting from the indemnity. Consequently, the presence of such a provision does not mean the transaction is in the scope of this Subtopic. ##### [842-40-55-8](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:be477baff79af130b5245708cfe3bf410605ea60a681c5b963ce8248453a4d22 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity owns an interest in an [underlying asset](https://asc.understandingaccounting.org/glossary/u/#underlying-asset "An asset that is the subject of a lease for which a right to use that asset has been conveyed to a lessee. The underlying asset could be a physically distinct portion of a single asset.") and also is a [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration.") under an [operating lease](https://asc.understandingaccounting.org/glossary/o/#operating-lease "From the perspective of a lessee, any lease other than a finance lease. From the perspective of a lessor, any lease other than a sales-type lease or a direct financing lease.") for all or a portion of the underlying asset. Acquisition of an ownership interest in the underlying asset and consummation of the [lease](https://asc.understandingaccounting.org/glossary/l/#lease "A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.") occurred at or near the same time. This owner-lessee relationship can occur, for example, when the entity has an investment in a partnership that owns the underlying asset (or a larger asset of which the underlying asset is a distinct portion). The entity subsequently sells its interest or the partnership sells the underlying asset to an independent third party, and the entity continues to lease the underlying asset under the preexisting operating lease. ##### [842-40-55-9](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:9ce9c7823c566ed786370b3b68b2851d472471fb442ae0f2aedaed9fe0a6aaaa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A transaction should be subject to the guidance in this Subtopic if the scope or price of the preexisting lease is modified in connection with the sale. If the scope or the price of the preexisting lease is not modified in conjunction with the sale, the sale should be accounted for in accordance with other Topics. ##### [842-40-55-10](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:c24f9970e2985966a4ab35df334b96c900494a026232df91010e4242bc2ac3bd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A lease between parties under common control should not be considered a preexisting lease. Accordingly, the guidance in this Subtopic should be applied to transactions that include nonfinancial assets within its scope, except if Topic 980 on regulated operations applies. That is, if one of the parties under common control is a regulated entity with a lease that has been approved by the appropriate regulatory agency, that lease should be considered a preexisting lease. ##### [842-40-55-11](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:25d8770469d5b7358114af56590fc9e099637bb11d03743203383f1f1a4aa312 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A U.S. entity purchases an asset and enters into a [contract](https://asc.understandingaccounting.org/glossary/c/#contract "An agreement between two or more parties that creates enforceable rights and obligations.") with a foreign investor that provides that foreign investor with an ownership right in, but not necessarily title to, the asset. That ownership right enables the foreign investor to claim certain benefits of ownership of the asset for tax purposes in the foreign tax jurisdiction. ##### [842-40-55-12](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:a855ae8394eb29914d4620d608e11bae2545c7e16a7c8470daba56d8852d4097 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The U.S. entity also enters into a contract in the form of a leaseback for the ownership right with the foreign investor. The contract contains a purchase option for the U.S. entity to acquire the foreign investor's ownership right in the asset at the end of the [lease term](https://asc.understandingaccounting.org/glossary/l/#lease-term "The noncancellable period for which a lessee has the right to use an underlying asset, together with all of the following: Periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option Periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option Periods covered by an option to extend (or not to terminate) the lease in which exercise of the option is controlled by the lessor."). ##### [842-40-55-13](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:6a24699e4b53f47212aa440714a3e8ffe2136f6156e0cabe7c982b3c2e26ff35 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The foreign investor pays the U.S. entity an amount of cash on the basis of an appraised value of the asset. The U.S. entity immediately transfers a portion of that cash to a third party, and that third party assumes the U.S. entity's obligation to make the future [lease payments](https://asc.understandingaccounting.org/glossary/l/#lease-payments "See paragraph 842-10-30-5 for what constitutes lease payments from the perspective of a lessee and a lessor."), including the purchase option payment. The cash retained by the U.S. entity is consideration for the tax benefits to be obtained by the foreign investor in the foreign tax jurisdiction. The U.S. entity may agree to indemnify the foreign investor against certain future events that would reduce the availability of tax benefits to the foreign investor. The U.S. entity also may agree to indemnify the third-party trustee against certain future events. ##### [842-40-55-14](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:27e991f2a7dcd1c5e7594aa4886a1d198ce1dc6c26391022f1c31048e8d2a66b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The result of the transaction is that both the U.S. entity and the foreign investor have a tax basis in the same depreciable asset. ##### [842-40-55-15](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:a941cea1af24f0e70d95e262fd3ff662bbd29118159b3c04773428c57731d20b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity should determine whether the transfer of the ownership right is a sale based on the guidance in paragraphs [842-40-25-1 through 25-3](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-1) . Consistent with paragraphs [842-40-25-2 through 25-3](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-2) , if the leaseback for the ownership right is a [finance lease](https://asc.understandingaccounting.org/glossary/f/#finance-lease "From the perspective of a lessee, a lease that meets one or more of the criteria in paragraph 842-10-25-2.") or if the U.S. entity has an option to repurchase the ownership right at any exercise price other than the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") of that right on the exercise date, there is no sale. If the transfer of the ownership right is not a sale, consistent with the guidance in paragraph [842-40-25-5](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-5), the entity should account for the cash received from the foreign investor as a financial liability in accordance with other Topics. ##### [842-40-55-16](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-16) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:54a3f919ce6e2f3faa2a1eda0eb9d3c42c8ede027f66c5b5907f8898db9d37f8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the transfer of the ownership right is a sale, income recognition for the cash received should be determined on the basis of individual facts and circumstances. Immediate income recognition is not appropriate if there is more than a remote possibility of loss of the cash consideration received because of indemnification or other contingencies. ##### [842-40-55-17](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-17) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:c44385cea668b9193382bf95ffb3c5f4e270b683c6b8cdac5138940b304ef5b9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The total consideration received by the U.S. entity is compensation for both the tax benefits and the indemnification of the foreign investor or other third-party trustee. The recognition of a liability for the indemnification agreement at inception in accordance with the guidance in Topic 460 on guarantees would reduce the amount of income related to the tax benefits that the seller-lessee would recognize immediately when the possibility of loss is remote. ##### [842-40-55-18](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-18) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:f909f17ddad6d13b1fbf19a53f038ec71a504466f6a94b640ff04081cdecadb5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity enters into a sale and leaseback of an asset that meets either of the following criteria: 1. a The asset is subject to an [operating lease](https://asc.understandingaccounting.org/glossary/o/#operating-lease "From the perspective of a lessee, any lease other than a finance lease. From the perspective of a lessor, any lease other than a sales-type lease or a direct financing lease."). 2. b The asset is subleased or intended to be subleased by the seller-lessee to another party under an operating lease. ##### [842-40-55-19](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-19) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:851d22bf37abb0bd4a3d0916835f3b3a197239fb85ba85844f1be7cdcde4de1e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A sale-leaseback-sublease transaction is within the scope of this Subtopic. The existence of the [sublease](https://asc.understandingaccounting.org/glossary/s/#sublease "A transaction in which an underlying asset is re-leased by the lessee (or intermediate lessor) to a third party (the sublessee) and the original (or head) lease between the lessor and the lessee remains in effect.") (that is, the operating lease in paragraph [842-40-55-18(a) or (b)](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-18)) does not, in isolation, prevent the buyer-lessor from obtaining control of the asset in accordance with paragraphs [842-40-25-1 through 25-3](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-1) , nor does it prevent the seller-lessee from controlling the asset before its transfer to the buyer-lessor (that is, the seller-lessee is subject to the same requirements for determining whether the transfer of the asset is a sale as it would be without the sublease). All facts and circumstances should be considered in determining whether the buyer-lessor obtains control of the [underlying asset](https://asc.understandingaccounting.org/glossary/u/#underlying-asset "An asset that is the subject of a lease for which a right to use that asset has been conveyed to a lessee. The underlying asset could be a physically distinct portion of a single asset.") from the seller-lessee in a sale-leaseback-sublease transaction. ##### [842-40-55-20](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-20) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:9b6e29a08185fc10dde7416a6c601844e84958bfa9285b6d89892ca65eea3c4e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The seller-lessee may guarantee to the [lessor](https://asc.understandingaccounting.org/glossary/l/#lessor "An entity that enters into a contract to provide the right to use an underlying asset for a period of time in exchange for consideration.") that the residual value will be a stipulated amount at the end of the [lease term](https://asc.understandingaccounting.org/glossary/l/#lease-term "The noncancellable period for which a lessee has the right to use an underlying asset, together with all of the following: Periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option Periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option Periods covered by an option to extend (or not to terminate) the lease in which exercise of the option is controlled by the lessor."). If the transfer of the asset is a sale in accordance with paragraphs [842-40-25-1 through 25-3](https://asc.understandingaccounting.org/asc/842/40/#842-40-25-1) , the seller-lessee [residual value guarantee](https://asc.understandingaccounting.org/glossary/r/#residual-value-guarantee "A guarantee made to a lessor that the value of an underlying asset returned to the lessor at the end of a lease will be at least a specified amount.") should be accounted for in the same manner as any other residual value guarantee provided by a [lessee](https://asc.understandingaccounting.org/glossary/l/#lessee "An entity that enters into a contract to obtain the right to use an underlying asset for a period of time in exchange for consideration."). ##### [842-40-55-21](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-21) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:bb229e0a214dc2d9c2df4dab4e25d1823c69695f35144bcd9ea5a683d561028a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The residual value guarantee does not, on its own, preclude accounting for the transaction as a sale and leaseback, but should be considered in evaluating whether control of the asset has transferred to the buyer-lessor in accordance with paragraph [606-10-25-30](https://asc.understandingaccounting.org/asc/606/10/#606-10-25-30). For example, a significant residual value guarantee by the seller-lessee may affect an entity's consideration of the transfer of control indicator in paragraph [606-10-25-30(d)](https://asc.understandingaccounting.org/asc/606/10/#606-10-25-30). #### Illustrations ##### [842-40-55-22](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-22) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:62689993e9794fe579698bcd7a0534c4498ccb78f26bbebf925d13d215bd3bec Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Examples 1 and 2 illustrate the accounting for sale and leaseback transactions. ##### [842-40-55-23](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-23) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:183191bfc9816e4f4b19e8017d465d25c5dbc485c15a3d462eeca29da4a1bb05 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity (Seller) sells a piece of land to an unrelated entity (Buyer) for cash of $2 million. Immediately before the transaction, the land has a carrying amount of $1 million. At the same time, Seller enters into a contract with Buyer for the right to use the land for 10 years (the leaseback), with annual payments of $120,000 payable in arrears. This Example ignores any initial direct costs associated with the transaction. The terms and conditions of the transaction are such that Buyer obtains substantially all the remaining benefits of the land on the basis of the combination of the cash flows it will receive from Seller during the leaseback and the benefits that will be derived from the land at the end of the lease term. In determining that a sale occurs at commencement of the leaseback, Seller considers that, at that date, all of the following apply: 1. a Seller has a present right to payment of the sales price of $2 million. 2. b Buyer obtains legal title to the land. 3. c Buyer has the significant risks and rewards of ownership of the land because, for example, Buyer has the ability to sell the land if the property value increases and also must absorb any losses, realized or unrealized, if the property value declines. ##### [842-40-55-24](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-24) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:93e3d66367d2fe92fd466486f713627b717354683639863225769460a9f1d3ec Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The observable fair value of the land at the date of sale is $1.4 million. Because the fair value of the land is observable, both Seller and Buyer utilize that benchmark in evaluating whether the sale is at market term. Because the sale is not at fair value (that is, the sales price is significantly in excess of the fair value of the land), both Seller and Buyer adjust for the off-market terms in accounting for the transaction. Seller recognizes a gain of $400,000 ($1.4 million - $1 million) on the sale of the land. The amount of the excess sale price of $600,000 ($2 million - $1.4 million) is recognized as additional financing from Buyer to Seller (that is, Seller is receiving the additional benefit of financing from Buyer). Seller's incremental borrowing rate is 6 percent. The leaseback is classified as an operating lease. ##### [842-40-55-25](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-25) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:e0ae6068494819e7b7dda04fc362e8c74f3cc22bb978a7b4ad6e727671c80b4a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the commencement date, Seller derecognizes the land with a carrying amount of $1 million. Seller recognizes the cash received of $2 million, a financial liability for the additional financing obtained from Buyer of $600,000, and a gain on sale of the land of $400,000. Seller also recognizes a lease liability for the leaseback at the present value of the portion of the 10 contractual leaseback payments attributable to the lease of $38,479 ($120,000 contractual lease payment - $81,521 of that lease payment that is attributable to the additional Buyer financing), discounted at the rate of 6 percent, which is $283,210, and a corresponding right-of-use asset of $283,210. The amount of $81,521 is the amount of each $120,000 annual payment that must be attributed to repayment of the principal of the financial liability for that financial liability to reduce to zero by the end of the lease term. ##### [842-40-55-26](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-26) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:26f4cbf307f2cfa84f4574b53a443364ae7bb40ac65e08d0aea65690cc8addeb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. After initial recognition and measurement, at each period of the lease term, Seller will do both of the following: 1. a Decrease the financing obligation for the amount of each lease payment allocated to that obligation (that is, $81,521) and increase the carrying amount of the obligation for interest accrued using Seller's incremental borrowing rate of 6 percent. For example, at the end of Year 1, the balance of the financial obligation is $554,479 ($600,000 - $81,521 + $36,000). 2. b Recognize the interest expense on the financing obligation (for example, $36,000 in Year 1) and $38,479 in operating lease expense. ##### [842-40-55-27](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-27) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:1d0860e3f4b3cba9f9ce7f0f033a45ae6f71004754196d25cc64517ba04bf11c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of the lease term, the financing obligation and the lease liability equal $0. ##### [842-40-55-28](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-28) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:f5c272f4e9bdbba33f81592c9e0dbed9522d4c68824e8d737875e9c7623c4ee5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Also, at the commencement date, Buyer recognizes the land at a cost of $1.4 million and a financial asset for the additional financing provided to Seller of $600,000. Because the lease is an operating lease, at the date of sale Buyer does not do any accounting for the lease. ##### [842-40-55-29](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-29) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:7c58676ec26c86096cb92a2f93dc19ba44d7c85519094a492b6c9ea518d90bdd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accounting for the additional financing to Seller, Buyer uses 6 percent as the applicable discount rate, which it determined in accordance with paragraphs [835-30-25-12 through 25-13](https://asc.understandingaccounting.org/asc/835/30/#835-30-25-12) . Therefore, Buyer will allocate $81,521 of each lease payment to Buyer's financial asset and allocate the remaining $38,479 to lease income. After initial recognition and measurement at each period of the lease term, Buyer will do both of the following: 1. a Decrease the financial asset for the amount of each lease payment received that is allocated to that obligation (that is, $81,521) and increase the carrying amount of the obligation for interest accrued on the financial asset using Seller's incremental borrowing rate of 6 percent. Consistent with Seller's accounting, at the end of Year 1, the carrying amount of the financial asset is $554,479 ($600,000 - $81,521 + $36,000). 2. b Recognize the interest income on the financing obligation (for example, $33,269 in Year 2) and $38,479 in operating lease income. ##### [842-40-55-30](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-30) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:379e3692a3dc650c607e4736a5f1ea75b6b4bebaa9f32675afca8247d08a45b6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of the lease term, the carrying amount of the financial asset is $0, and Buyer continues to recognize the land. ##### [842-40-55-31](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-31) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:15b19d54472d8e21ecb54bc436342145a84fc47bdf354d66c26365dba9308ca3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An entity (Seller) sells an asset to an unrelated entity (Buyer) for cash of $2 million. Immediately before the transaction, the asset has a carrying amount of $1.8 million and has a remaining useful life of 21 years. At the same time, Seller enters into a contract with Buyer for the right to use the asset for 8 years with annual payments of $200,000 payable at the end of each year and no renewal options. Seller's incremental borrowing rate at the date of the transaction is 4 percent. The contract includes an option to repurchase the asset at the end of Year 5 for $800,000. ##### [842-40-55-32](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-32) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:9d692b9d65ca9a65aa3966e77e5d87b39c44f525a4e139a23d44931cab74d4a6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The exercise price of the repurchase option is fixed and, therefore, is not the fair value of the asset on the exercise date of the option. Consequently, the repurchase option precludes accounting for the transfer of the asset as a sale. Absent the repurchase option, there are no other factors that would preclude accounting for the transfer of the asset as a sale. ##### [842-40-55-33](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-33) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:5a1f38886886f713f066ec09610e393f1032587851ffc213aef843533710ae0c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Therefore, at the commencement date, Seller accounts for the proceeds of $2 million as a financial liability and continues to account for the asset. Buyer accounts for the payment of $2 million as a financial asset and does not recognize the transferred asset. Seller accounts for its financing obligation, and Buyer accounts for its financial asset in accordance with other Topics, except that, in accordance with paragraph [842-40-30-6](https://asc.understandingaccounting.org/asc/842/40/#842-40-30-6), Seller imputes an interest rate (4.23 percent) to ensure that interest on the financial liability is not greater than the payments on the financial liability over the shorter of the lease term and the term of the financing and that the carrying amount of the asset will not exceed the financial liability at the point in time the repurchase option expires (that is, at the point in time Buyer will obtain control of the asset in accordance with the guidance on satisfying performance obligations in Topic 606). Paragraph [842-40-30-6](https://asc.understandingaccounting.org/asc/842/40/#842-40-30-6) does not apply to the buyer-lessor; therefore, Buyer recognizes interest income on its financial asset on the basis of the imputed interest rate determined in accordance with paragraphs [835-30-25-12 through 25-13](https://asc.understandingaccounting.org/asc/835/30/#835-30-25-12) , which in this case Buyer determines to be 4 percent. ##### [842-40-55-34](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-34) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:6d9568a2f83bac1ec86c6b6c295bc7c87847709c385230e7c434f70503bf8cc3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. During Year 1, Seller recognizes interest expense of $84,600 (4.23% × $2 million) and recognizes the payment of $200,000 as a reduction of the financial liability. Seller also recognizes depreciation expense of $85,714 ($1.8 million ÷ 21 years). Buyer recognizes interest income of $80,000 (4% × $2 million) and recognizes the payment of $200,000 as a reduction of its financial asset. ##### [842-40-55-35](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-35) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:4dd85644f71b628766eeb03c0dd1f14726dc98e8300c3db86c114378aa67969f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of Year 1, the carrying amount of Seller's financial liability is $1,884,600 ($2 million + $84,600 - $200,000), and the carrying amount of the underlying asset is $1,714,286 ($1.8 million - $85,714). The carrying amount of Buyer's financial asset is $1,880,000 ($2 million + $80,000 - $200,000). ##### [842-40-55-36](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-36) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:719ee1dc4b11cbba924979a470d44338488c675ab7c5e2df57d7e00cf62cc00a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of Year 5, the option to repurchase the asset expires, unexercised by Seller. The repurchase option was the only feature of the arrangement that precluded accounting for the transfer of the asset as a sale. Therefore, upon expiration of the repurchase option, Seller recognizes the sale of the asset by derecognizing the carrying amount of the financial liability of $1,372,077, derecognizing the carrying amount of the underlying asset of $1,371,429, and recognizing a gain of $648. Buyer recognizes the purchase of the asset by derecognizing the carrying amount of its financial asset of $1,350,041 and recognizes the transferred asset at that same amount. The date of sale also is the commencement date of the leaseback for accounting purposes. The lease term is 3 years (8 year contractual leaseback term - 5 years already passed at the commencement date). Therefore, Seller recognizes a lease liability at the present value of the 3 remaining contractual leaseback payments of $200,000, discounted at Seller's incremental borrowing rate at the contractually stated commencement date of 4 percent, which is $555,018, and a corresponding right-of-use asset of $555,018. Seller uses the incremental borrowing rate as of the contractual commencement date because that rate more closely reflects the interest rate that would have been considered by Buyer in pricing the lease. ##### [842-40-55-37](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-37) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:8e6b36845a91e159182b7fec3869ee8ed2b39c04ca9a271dc32947e6375e6b73 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The lease is classified as an operating lease by both Seller and Buyer. Consequently, in Year 6 and each year thereafter, Seller recognizes a single lease cost of $200,000, while Buyer recognizes lease income of $200,000 and depreciation expense of $84,378 on the underlying asset ($1,350,041 ÷ 16 years remaining useful life). ##### [842-40-55-38](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-38) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:f715a3b0d7ccd33e13581b41c37e541f81d1e1bfac273ba1d38f0190130799ee Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. At the end of Year 6 and at each reporting date thereafter, Seller calculates the lease liability at the present value of the remaining lease payments of $200,000, discounted at Seller's incremental borrowing rate of 4 percent. Because Seller does not incur any initial direct costs and there are no prepaid or accrued lease payments, Seller measures the right-of-use asset at an amount equal to the lease liability at each reporting date for the remainder of the lease term. ##### [842-40-55-39](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-39) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:71d9f3ce7285029215fe2f56b63815b55cadd8fd1d719eaa4f656c232e32d515 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 3 illustrates the guidance on determining whether a lessee controls an underlying asset that is under construction before the commencement date. ##### [842-40-55-40](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-40) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:23a1850643b762d46f3fe3e2313e42031db3f9cf295bb7a8ceaba0187ab97ea1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee and Lessor enter into a contract whereby Lessor will construct (whether itself or using subcontractors) a building to Lessee's specifications and lease that building to Lessee for a period of 20 years once construction is completed for an annual lease payment of $1,000,000, increasing by 5 percent per year, plus a percentage of any overruns above the budgeted cost to construct the building. The building is expected to have an economic life of 50 years once it is constructed. Lessee does not legally own the building and does not have a right under the contract to obtain the building while it is under construction (for example, a right to purchase the construction in process from Lessor). In addition, while the building is being developed to Lessee's specifications, those specifications are not so specialized that the asset does not have an alternative use to Lessor. ##### [842-40-55-41](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-41) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:64b80d22c264711f12e1367b961ce33989097129d36a916157faf36b3c4065db Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume Lessee controls (that is, Lessee is the owner for accounting purposes) the land upon which the building will be constructed and, as part of the contract, Lessee agrees to lease the underlying land to Lessor for an initial period of 25 years. Lessor also is granted a series of six 5-year renewal options for the land lease. ##### [842-40-55-42](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-42) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:4df007dc858182ed16fff81b023358f0708c85842ee55d02e95ac44d528a3959 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. None of the circumstances in paragraph [842-40-55-5](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-5) exist. Even though Lessee owns the land (whether legally or for accounting purposes only) upon which the building will be constructed, Lessor legally owns the property improvements and has rights to use the underlying land for at least substantially all of the economic life of the building. Lessee does not own the building and does not have a right under the contract to obtain the building (for example, a right to purchase the building from Lessor). In addition, the building has an alternative use to Lessor. Therefore, Lessee does not control the building under construction. Consequently, the arrangement is not within the scope of this Subtopic. Lessee and Lessor will account for the lease of the building in accordance with Subtopics 842-20 and 842-30, respectively. If Lessee incurs costs related to the construction or design of the building (for example, architectural services in developing the specifications of the building), it will account for those costs as lease payments unless the costs are for goods or services provided to Lessee, in which case Lessee will account for those costs in accordance with other Topics. ##### [842-40-55-43](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-43) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:960800deaf10629dcd05594f1613a5c185ac13c5389447c9dad98e583cae210b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume Lessee leases, rather than owns, the land upon which the building will be constructed. Lessee has a 20-year lease of the underlying land and five 10-year renewal options. Therefore, Lessee's lease of the underlying land, together with the renewal options, is for at least substantially all of the economic life of the building under construction. Lessee enters into a sublease with Lessor for the right to use the underlying land for 20 years that commences upon completion of the building. The sublease has a single 10-year renewal option available to Lessor. ##### [842-40-55-44](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-44) Pending content: no Source downloaded (UTC): 2026-09-10T01:57:56.244Z to 2026-09-10T01:57:56.244Z Record version: sha256:c8591b4fbf100cf424d7044d45c10d8b17257ac59d8b1528762d97d4755e0a40 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Lessee controls the building during the construction period and, therefore, the arrangement is within the scope of this Subtopic. Lessee and Lessor will apply the guidance in this Subtopic to determine whether this arrangement qualifies as a sale and a leaseback or whether this arrangement is, instead, a financing arrangement. Lessee controls the building during the construction period because, in accordance with paragraph [842-40-55-5(e)](https://asc.understandingaccounting.org/asc/842/40/#842-40-55-5), Lessee controls the use of the land upon which the building will be constructed for a period that is at least substantially all of the economic life of the building and the sublease entered into with Lessor does not both (a) grant Lessor the right to use the land before the beginning of construction and (b) permit Lessor to use the land for substantially all the economic life of the building (that is, the sublease, including Lessor renewal options, only is for 30 years as compared with the 50-year economic life of the building).