My company is entering into an arrangement where we sell furniture and equipment to a 3rd party and they will lease it back to us for 3 years. We’ll pay monthly lease payments and we have the option to purchase the furniture and equipment at the end for a nominal amount. How do you account for this sale leaseback?
Sale leaseback
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Since you have a bargain purchase option, this would be considered a finance lease. If it’s a finance lease, then it’s not a true sale leaseback because you retain control of the furniture and equipment. In other words, the furniture and equipment will stay on your books, and you’ll recognize a financing liability. This is in essence a financing arrangement.