The challenging questions relating to accounting theories and accounting policies.


Theories Relating to Accounting Theories and Accounting Policies

Questions Relating to the Theories Relating to Accounting Theories and Accounting Policies

Question 1

Conversion of equity to cash

In a sale-leaseback arrangement, Lion Nathan have the ability to regain the use of capital which would have been of property ownership. At the same time, Nathan will retain the possession and continue to use the property on the lease terms (Noriko, 2015). Moreover, Nathan will receive more cash with the arrangements than the amount that would be possibly obtained through conventional mortgage financing.

Alternative to conventional financing

Nathan would have the ability to structure the ignition lease terms for the time periods that meets the needs without having the burden of balloon payments and call for other conventional financing. Moreover, as the seller, Nathan will avoid significant costs of conventional financing and legal fees (Slovin, Shushka & Poloncheck, 200). The agreement will also provide Nathan with flexibility through various renewal options.

Avoid Debt Restrictions

Nathan would benefit from the arrangement is the business would be restricted from obtaining other debts by implementing prior loan or bond agreements. Moreover, the rent paid is not regarded as indebtness. Therefore, the business can meet its cash obligations through the agreement without violating initial agreements.

Question 2

I would expect this lease to be a finance lease as there is an option of sale and lease back. This is because the company would be able to continue with the lease for a secondary period at a rate that is much lower than the prevailing market rent. The lease will also obtain profits and losses from the fair value fluctuations of the residential accrue (Sirmans & Slade, 2010). Moreover, in the case where the company cancels the lease, the losses experienced by the lessor due to cancelation are borne by the company. Also, Nathan would have a rent obligation disclosed in the balance sheet foot note rather than the liability.

Question 3

Profits and loss are expressed by applying the profit and loss accounts statements. Lion Nathan would update the account in a routine manner to shoe the profits and losses the business made in the sale of the pubs. also, when a seller in a sale and leaseback agreement realize profit or loss on the sale, the recognition of the profit or loss will depend on the facts and conditions of the sale and leaseback transaction.

Question 4

Yes, Lion Nathan would change hoy it accounts for depreciation of the building. The leased building will remain on the seller-lessee’s books as the sale value as the seller-lessee’s records depreciation of the expense and expense on interest over the life period of the (Sebatini. 2013). Lion Nathan will amortize the differed gain or loss as part of the depreciation expense on a similar proportion of the leased building that is being depreciated. After the initial capitalization of the leased building, Lion Nathan should charge depreciation on the asset over a shorter term or on the useful economic life of the building.


Noriko, A 2015, ‘Determinants of Potential Seller/Lessee Benefits in Sale—Leaseback Transactions’, International Real Estate Review, 18, 1, pp. 89-112

Sabatini, G 2013, ‘Sale-Leaseback — Corporate Real Estate as a Long-Term Source of Financing’, Site Selection, 58, 3, pp. 190-196

Sirmans, C, & Slade, B 2010, ‘Sale-Leaseback Transactions: Price Premiums and Market Efficiency,’ Journal Of Real Estate Research, 32, 2, pp. 221-241

Slovin, M. B., Sushka, M. E., & Polonchek, J. A. (2000). Corporate Sale-and-Leasebacks and Shareholder Wealth. Journal Of Finance, 45(1), 289-299