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Advanced Accounting: Sale And Leaseback Transactions

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Question:

Discuss about the Advanced Accounting for Sale and Leaseback Transactions.

 

Answer:

Possible Benefits Accruable to Lion Nathan

Reinvestment of the working capital realised into the company’s operations

From this act, Nathan was able to raise $20 million from the sale and leaseback of its portfolio based on the past financial statements of the period. These realised profits can be reinvested back into the company’s operations and diversify its beer brands to other capital markets [1].

Boosting Cashflows

As per the case, Lion Nathan’s action of reviewing the ownership that it possesses in its 41 pubs operating in Melbourne and Geelong creates a potential opportunity for the sale and leaseback options for its hotel assets. With a continued expectation that contractual agreements for the long-term supply of beer to the market, this creates a benefit of raising the share price as well as the interest.

Possibility of avoiding potential risks associated with owning the brewer assets

Since Lion Nathan is committed to retaining and expanding ownership and control of the portfolio, shareholders wealth will first get maximised. Further, diversification of Nathan's portfolio in hotels in the brewer such as The Imperial and Pugg Mahone's, and Albert Park Hotel will enable Lion to avoid risks associated with owners all these properties.

 

A Finance Lease

According to the newspaper article, the related lease is a capital lease. First and foremost, the article states that one key requirement for the contract is long-term contracts for the supply arrangements which is an attribute for a capital lease (Stice & Stice, 2013). The contract only becomes to existence after expression of interest from the interested pubs in Melbourne and Geelong.

Secondly, Lion Nathan can capitalise on its rental assets in hotels whereby all the obligations are seen to be recordable as assets for the firm. The future lease payments, for example, the purchase of spree provided odds of not owing to the hotels for the brewer needed an exception in operations[2].

Further, Lion Nathan’s focus to switch its investments across all brands, therefore a capital lease. Lion Nathan's statement that it was not planning to dispose of its venues but rather remained committed to the retention of ownership and control of the portfolio shows that this was a capital lease (Gettler, 2004). 

 

Bibliography

Gettler, L. (2004). Lion Nathan rethinks bricks and Porter strategy. Financial Accounting in the News, 3.

Stice, E., & Stice, J. (2013). Intermediate Accounting. Boston: Cengage Learning.

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