CA Inter P6 · Chapter 2 · Question 6 of 7
Mahendra Textiles Ltd sells its factory building to a leasing company for cash and simultaneously leases the same building back for 15 years. The main purpose of this arrangement is to:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Release funds tied up in the asset while keeping the right to use it
Explanation
Under a sale and leaseback, the owner sells an asset and leases it back immediately. The company gets a lump sum of cash to use elsewhere and continues to use the asset in return for lease rentals. Operating risks stay with the company, and maintenance obligations depend on the lease terms.
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