Summary of Statement No. 26
Profit Recognition on Sales-Type Leases of Real Estate--an amendment of FASB Statement No. 13 (Issued 4/79)
Summary
This Statement specifies that a lease of real estate that would
otherwise be classified as a sales-type lease under FASB
Statement No. 13, "Accounting for Leases," and that results in
a "sales-type" profit shall be classified as an operating lease by
the lessor unless at the beginning of the lease term it also meets
the conditions for full and immediate profit recognition as
described in the AICPA Industry Accounting Guide,
"Accounting for Profit Recognition on Sales of Real Estate." This
means that a lessor would be precluded from classifying a lease as
a sales-type lease and recognizing a "sales-type" profit unless,
for example, the lessor receives lease payments as of the beginning
of the lease term in an amount at least equal to the minimum down
payment requirement specified by the AICPA Industry Accounting
Guide. The down payment requirements of the Guide range from 5
to 25 percent depending on the type of property.
The Statement does not affect the classification of a
sales-type lease of real estate that results in a "sales-type"
loss, nor does it affect the classification of a lease of real
estate that would be classified as a direct financing lease.