- This topic has 4 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
Dear Sir,
Let say in a sale and operating leaseback question, we were required to determine the profit on disposal that should claim and the details are as follows:
Proceeds of sale = 10 million
FV of asset at time of sale = 9 million
Carrying amount at time of sale = 3.5 millionShall I use 10 million or 9 million to deduct 3.5 million to obtain the profit on disposal? I refer to a reference book. Sometimes it uses proceeds of sale and sometimes FV of assets but it did not state the reason. In this case, it said 9 million shall be used without further explanation.
Thanks in advance Sir.
The gain from 3.5 to 9 is recognised immediately
The gain from 9 to 10 should be deferred and spread over the life of the lease
Ok?
Dear Sir,
Thanks for the reply. One more question, why can’t we use 10 million to deduct 3 million to obtain the gain on sale?
Thanks in advance Sir.
Sorry Sir,
It was my typing error in the previous post. I meant why can’t we use sales proceeds of 10 million to deduct 3.5 million to obtain the gain on sale? What is the reason behind this?
In what situation, we shall use sales proceeds to minus carrying value and not FV to minus the carrying value to obtain the gain on sale?
Thanks for the kind attention Sir.
Where sale proceeds are lower than fair value … but that lower value may have been agreed in exchange for lower annual rentals in which case there is an adjustment to be made (and you’ll meet that in P2)
The ‘additional’ gain of 1 (10 – 9) is unrealised and will only be realised over the life of the lease
Ok?
- You must be logged in to reply to this topic.