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maam the derecognition of asset and recognition of profit on disposal clearly suggests that the co has adopted sale and lease back accounting. Now as per S&L accounting profit is calculated using the following formula (from my SBR/FR knowledge):
profit= (FV- PV of lease liability)x carrying amount/FV
and not a simple FV -CA (i.e. 35-27=8) like what has been done in the answer.
I find the treatment in the answer absolutely strange. Your thoughts on this?
Please try this post https://opentuition.com/topic/bpp-q22-adder
I am still not sure if I have understood the above point ma’am.
now it seems that, I have another doubt also pertaining to this question.
General rule is that asset should be depreciated over the shorter of useful life and lease term. Unless the asset transfers to the lessee at the end of lease term, in which case the asset should be depreciated over its useful life.So here why is the asset not being depreciated over 21 years useful life? why does the examiner’s answer use 20year useful life?
Short answer – don’t know – presumably you are not looking at the original Q&A (which is obsolete) but a publishers technically updated version, which I cannot comment on.
Don’t know if this might help https://opentuition.com/topic/sale-and-leaseback-10
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