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IFRS 16 leases

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › IFRS 16 leases

  • This topic has 2 replies, 2 voices, and was last updated 2 years ago by S4M101.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • October 16, 2022 at 8:58 am #668771
    S4M101
    Participant
    • Topics: 7
    • Replies: 10
    • ☆

    Hello Chris, hope you are doing fine.

    this is my doubt,

    Q) On 1 January 20X6. Sidcup Co sold its head office building to Eltham Co for $3 million and
    immediatel!J leased it back on a 10-year lease. On that date, the carrying amount of the building

    was $2.6 million and its fair value was $3 million. The present value of the lease payments was
    calculated as $2.1 million. The remaining useful life of the building at 1 January 20X6 was 15
    years. The transaction constituted a sale in accordance with IFRS 15.

    Required

    A right-of-use asset must be recognised in respect of the leased building. At what amount should this right-of-use asset be recognised on 1 January 20X6 in the financial statements of Sidcup Co?

    Answer given in the back:

    Sidcup only recognises the amount of gain that relates to the rights transferred.

    Stage 1: Gain is $3,000,000 – $2,600,000 = $400,000

    Stage 2: Gain relating to rights retained $(400,000 x 2,100,000/3,000,000) = $280,000

    Stage 3: Gain relating to rights transferred $(400,000 – 280,000) = $120,000

    doubt:

    I calculated the value of the right of use asset as $1,820,000 using your method; it appears that they are only considering the gains related to the rights transferred.
    Could you clarify why they only recognized the transferred rights and not the value of the right of the use asset?

    October 22, 2022 at 9:19 pm #669663
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    Do they not then go on to calculate the value of the right of use asset within the answer?

    Thanks

    October 23, 2022 at 10:57 am #669703
    S4M101
    Participant
    • Topics: 7
    • Replies: 10
    • ☆

    It was an OTQ, although the value of the right of use asset ($ 1,820,000) was included in the options, the correct option was the gains on the rights transferred ($ 120,000).

    The following is the full answer given in the back:

    The correct answer is: $120,000

    IFRS 16 requires that, at the start of the lease, Sidcup should measure the right-of-use asset
    arising from the leaseback of the building at the proportion of the previous carrying amount of
    the building that relates to the right of use retained. This is calculated as carrying amount x
    discounted lease payments/fair value. The discounted lease payments were given in the question
    as $2.1 million.

    Sidcup only recognises the amount of gain that relates to the rights transferred.

    Stage 1: Gain is $3,000,000 – $2,600,000 = $400,000

    Stage 2: Gain relating to rights retained $(400,000 x 2,100,000/3,000,000) = $280,000

    Stage 3: Gain relating to rights transferred $(400,000 – 280,000) = $120,000

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