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A reporting entity may lease an asset in which it owns an interest (e.g., the lessee owns an interest in a partnership that owns the underlying asset). If the reporting entity sells its interest in the leased asset (e.g., sells its interest in the partnership that owns the underlying asset), but continues to lease the asset, the accounting treatment depends on whether the lease is modified in connection with the sale, as discussed in ASC 842-40-55-9.
  • If the preexisting lease is modified in connection with the sale, the seller-lessee should account for the transaction in accordance with the sale and leaseback guidance. See LG 6 for information on sale and leaseback transactions.
  • If the preexisting lease is not modified in connection with the sale, then the seller-lessee should account for the sale using other GAAP.
While the guidance in ASC 842-40-55-8 refers to a circumstance in which the reporting entity acquires its ownership interest and enters into the lease at or near the same time, we believe this guidance should be applied regardless of the length of time between the acquisition date of the ownership interest and the lease.
A sale or spinoff of a subsidiary that leases the property to its parent is a sale and leaseback whether the intercompany lease is modified or not. See LG 6 for information on sale and leaseback transactions.
ASC 842-40-55-10 provides additional guidance for when arrangements involve leases between parties under common control.

PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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