Sale and leaseback – ACCA SBR lecture
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Thanks for your video. I have a questions, when I tried to do the accounting from Lessor, supposed the obligation is not satisfied, from previous video you said that we should derecognise the asset and recognise the receivable. Suppose remaining useful life of the asset is 11 years.
From the example we have:
Asset: $10mil
Lease receivable = PV of lease payment @ 5% + PV of carrying value at 10th year = 7.7 mil + 5.5 mil = 13.2mil
So the entries should be:
1, Record the gain to OCI (or PnL)
Dr lease receivable: 13.2mil
Cr Asset 10 mil
Cr gain 3.2 mil
If in this case when at the end of 10 years leasing period ending, what happend with the gain above?
2. If the treatment above is not right, I am thinking about Cr asset with the same amount of receivable, now we have a negative value of asset and it would be depreciated during the useful life of the asset.
Can you suggest the right way, please?
Thank you, sir.
Sorry Sir, I have checked my spreadsheet, it was wrong due to a formula that lead to confusing.
Does the asset life and the leaseback have to be same? If the asset life is 40 years as per the example in the lecture and the leaseback is 35 or upwards, would that also be considered as a secured loan since we are leasing it back for the majority of the asset life?
The lease payments are made at the end of each year and the $7.72 is correct.
1 1 0.95
2 1 0.91
3 1 0.86
4 1 0.82
5 1 0.78
6 1 0.75
7 1 0.71
8 1 0.68
9 1 0.64
10 1 0.61
7.72
Example 7 says that the lease payments are due at the end of the lease period, would that not mean all 10m falls due in 10 years to the PV should be £6,139,132?
Lease term is 10 years.
at the end of each year 1m is paid.
This is an annuity payment so you use the annuity pv formula. ?1m * (1 – ((1+r) power of -n)/ r) or just search annuity present value formula.
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