Which method involves selling a fixed asset and then leasing it back to continue using it?

Which method involves selling a fixed asset and then leasing it back to continue using it?

• A. Retained profits
• B. Sale of fixed assets
• C. Sale and leaseback
• D. External sources of finance

Answer: (C)

This is about a way to raise cash from an asset while still using it. In a sale and leaseback, a business sells a fixed asset—like a piece of equipment or a building—and immediately leases it back from the buyer so the business can keep using it in its operations. You get the cash from the sale to improve liquidity, but you continue to operate as before because you’re paying rent on the asset instead of owning it outright. This matters because it helps free up capital stuck in long-term assets while preserving day-to-day use. You’ll show a cash inflow from the sale and a future obligation for lease payments, which can affect long-term costs and accounting treatment. Other options don’t fit this pattern. Retained profits are funds kept in the business from earnings, not a sale of the asset. The sale of fixed assets removes the asset entirely, so you’d lose use of it unless you replaced it. External sources of finance cover a broad range of funding but don’t specifically involve selling an asset and then leasing it back.

This is about a way to raise cash from an asset while still using it. In a sale and leaseback, a business sells a fixed asset—like a piece of equipment or a building—and immediately leases it back from the buyer so the business can keep using it in its operations. You get the cash from the sale to improve liquidity, but you continue to operate as before because you’re paying rent on the asset instead of owning it outright.

This matters because it helps free up capital stuck in long-term assets while preserving day-to-day use. You’ll show a cash inflow from the sale and a future obligation for lease payments, which can affect long-term costs and accounting treatment.

Other options don’t fit this pattern. Retained profits are funds kept in the business from earnings, not a sale of the asset. The sale of fixed assets removes the asset entirely, so you’d lose use of it unless you replaced it. External sources of finance cover a broad range of funding but don’t specifically involve selling an asset and then leasing it back.