For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”
FASB Accounting Standards Update (ASU) No. 2016-02, Leases.
The guidance and interpretive views in this section are based on the lease modification guidance in ASC 842 and do not take into account the relief detailed in the FASB staff Q&A on concessions that lessors have provided to lessees in response to the effects of the COVID-19 pandemic. Modifications eligible for that relief would be subject to additional considerations. See Deloitte’s Heads Up “FASB Decides to Defer Certain Effective Dates and Provides Guidance on COVID-19” for more information.
The sale-and-leaseback requirements under ASC 842-40 are generally the same for both real estate and equipment, though the considerations related to repurchase options for real estate are more restrictive than those for equipment. For a sale-and-leaseback transaction involving real estate, any repurchase option would result in a failed sale. In contrast, for a sale-and-leaseback transaction involving equipment, a repurchase option would not result in a failed sale if the option is priced at fair value and alternative assets that are substantially the same are readily available in the marketplace.
Certain other provisions in a sale-and-leaseback agreement may be viewed in a manner similar to a call option (e.g., an option granting the seller-lessee the right to substitute a property for that which is sold). The substance of such provisions should be assessed to determine whether the seller-lessee retains control of the property that was subject to the sale agreement.