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.