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In Sale and leaseback under an operating lease it has been explained in Kaplan that when sale price is equal to fair value, then recognise profit/loss immediately. However in june 10 Q4b) the sale is being done at fv but they are recording the profit as deferred income. I do not understand why is deferred income is being recorded. As far as i can see the Kaplan test your understanding number 4 of sale and leaseback under finance lease rules are being applied to this question. Wasn’t deferred income recorded in sales and leaseback under operating lease when the sale was in excess of fv and the difference was deferred? I don’t see such a thing in the past paper. Please help!
ACCA stopped publishing June 2010 exams so I cannot read contents of Question 4. However regarding your question, please find full details of accounting treatment for leases below.
Remember to identify whether it is operating or finance lease first.
For a sale and leaseback transaction that results in a finance lease, any excess of proceeds over the carrying amount is deferred and amortised over the lease term. [IAS 17.59]
For a transaction that results in an operating lease: [IAS 17.61]
if the transaction is clearly carried out at fair value – the profit or loss should be recognised immediately if the sale price is below fair value – profit or loss should be recognised immediately, except if a loss is compensated for by future rentals at below market price, the loss it should be amortised over the period of use if the sale price is above fair value – the excess over fair value should be deferred and amortised over the period of use if the fair value at the time of the transaction is less than the carrying amount – a loss equal to the difference should be recognised immediately [IAS 17.63]
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