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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

General Accounting

Sale-Leaseback Transactions

Sale-leaseback transactions involve the sale of property by the owner and a lease of the property back to the seller. A sale of property that is accompanied by a leaseback of all or any part of the property for all or part of its remaining economic life is accounted for by the seller-lessee and buyer-lessor.


Capital Lease

Record as deferred outflows of resources or deferred inflows of resources and amortize the gain or loss on the sale in proportion to the amortization of the leased asset if the lease meets one of the capital lease criteria.

Operating Lease

Record as deferred outflows of resources or deferred inflows of resources and amortize the gain and loss on the sale in proportion to the related gross rental charged to expense/expenditure over the lease term if the lease does not meet one of the capital lease criteria.

The sale and the leaseback is accounted for as separate transactions based on the respective terms for each if the seller-lessee relinquishes the right to substantially all of the remaining use of the property sold (retaining only a minor portion of such use).

If the seller-lessee retains more than a minor part but less than substantially all of the use of the property through the leaseback, a gain is realized on the sale for the excess of:

  • The present value of the minimum lease payments over the lease term (if the leaseback is classified as an operating lease)
  • The recorded amount of the leased asset (if the leaseback is classified as a capital lease)

In either case, the gain on the sale is recognized at the date of the sale. If the fair value of the property at the time of the transaction is less than its undepreciated cost, a loss is recognized immediately for up to the amount of the difference between undepreciated cost and fair value.


The buyer-lessor records the transaction as a purchase and a direct financing lease if the lease meets the capital lease and sale-type lease and direct financing criteria — otherwise, the transaction is recorded as a purchase and an operating lease.

Financial Statement Presentation and Disclosure

Include a description of the terms of the sale-leaseback transaction in the notes to financial statements of a seller-lessee, including future commitments, obligations, provisions or circumstances that require or result in the seller-lessee’s continuing involvement.

Glenn Hegar
Texas Comptroller of Public Accounts
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