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Mr x sells a machine and leases it back for 5 years , at the end of which the fair value is nil.
Q- treatment.
According to ans ignore the disposal and treat sale proceeds as financial liability. But why?Since it is a sale with lease where all criteria are met , they should recognise profit on disposal and capitalise the lease payment.
It is a sale and leaseback where we still have control and so continue to recognise the asset. If it is being used for 5 years whereby the value is nil at the end then effectively it is our asset and so should remain in the SFP and the proceeds therefore treated as a loan.
Thanks
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