SUMMARY OF SALE-LEASEBACK ACCOUNTING

If the transaction qualifies for sale-leaseback accounting:

The asset sold is removed from the balance sheet (e.g. the building)

The consideration received is recorded on the balance sheet (e.g. cash)

The leaseback is reviewed to determine if it is a capital lease or an operating lease, and recorded accordingly. A capital lease would require the asset or a large portion of the asset be put back on the balance sheet and a corresponding liability for the present value of the lease payments.

If asset sold has a carrying value greater than the consideration received, the loss is immediately recognized.

If the consideration received is greater than the asset sold, the gain is treated in the following manner:

·  If we leaseback only a minor portion of the asset sold, then the gain is recorded.

·  If we leaseback more than a minor portion, but less than substantially all of the asset , then a portion of the gain is deferred and a portion is recognized immediately (based on the portion of the asset we continue to use)

·  If we leaseback substantially all of the asset sold, 100% of the gain is deferred

To qualify for sale-leaseback accounting:

All of the following criteria must be met. If not the transaction is recorded as either a deposit or financed lease (gain is deferred).

  1. Normal lease terms
  2. Payment terms that indicate the buyer initial and continuing investment in the property
  3. All other risks and rewards of ownership have transferred to the buyer and no continuing involvement by the seller.

The following are examples (not a complete list) of continuing involvement:

·  Seller has an obligation to repurchase the asset

·  Seller guarantees a return of the buyer

·  Seller provides non-recourse financing

·  Seller is not relieved of existing debt of the asset

·  Seller provides collateral on behalf of buyer, to facilitate the buyer obtaining a loan

Would require Sony Corp approval – Note: Sony policy states: Subsidiaries shall conduct the lease transaction based on appropriate business reasons. Subsidiaries are not allowed to enter into lease transactions solely for the purpose of off-balance-sheet accounting treatment and/or avoiding budgetary restrictions.

GUIDANCE REFERENCE

SFAS 13 – Accounting for Leases, SFAS 28 – Accounting for Sale Leasebacks, SFAS 98 – Accounting for Leases