11.5 Lessor Accounting

In the scenario described above in which a lessee controls and is deemed the accounting owner of an underlying asset that is under construction before the lease commencement date, the lessor should account for the arrangement as a sale-and-leaseback transaction (in a manner consistent with the requirement for the lessee to account for the arrangement as a sale-and-leaseback transaction). In other words, the lessor’s cost of constructing the asset that it does not own for accounting purposes is accounted for as a financing arrangement (i.e., a loan to the lessee). Once construction is completed, the lessor applies the sale-and-leaseback guidance to determine when to recognize the underlying asset (which would be consistent with when the seller-lessee would also derecognize the underlying asset). See Chapter 10 for further details related to sale-and-leaseback accounting.