CA Intermediate · Financial Management and Strategic Management · Types of Financing
Under a sale and leaseback arrangement, a company sells an owned machine to a financier and immediately takes it back on lease. The main financing objective of this arrangement is to:
The main objective of sale and leaseback is to release funds tied up in an owned asset while still using it. The firm sells the machine for cash and pays lease rentals, so it gets liquidity without losing operational use of the asset.
- ARelease the funds locked up in the machine while continuing to use itCorrect
- BAcquire a new asset without making any payment
- CTransfer the ownership risk to the lessee permanently
- DObtain a grant that need not be repaid
Explanation
In a sale and leaseback, the firm sells an asset it already owns and leases it back, so cash is realised while operational use continues. Option B is wrong because the asset is already owned, not newly acquired. The firm pays lease rentals, so it is not a grant.
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