Annuity factor FR open tuition example

Dear tutor,

In example 3 in Leases chapter we have the following information.

Example 3 – Sale and leaseback (1)
Apple required funds to finance a new ambitious rebranding exercise. It’s only possible way of raising
finance is through the sale and leaseback of its head office building for a period of 10 years. The lease
payments of $1 million are to be made at the end of the lease period
The current fair value of the building is $10 million and the carrying value is $8.4 million. The interest rate
implicit in the lease is 5%.
Advise Apple on how to account for the sale and leaseback in its financial statements if the office
building were to be sold at the fair value of $10 million and:
(a) Performance obligations are not satisfied; or,
(b) Performance obligations are satisfied.

Answer to example 3 – Sale and leaseback (1)
(i) Transfer of asset is not a sale
Seller Lessor
• Continue to recognise the asset @ $8.4 million and
depreciate.
• Do not recognise the asset as it has not been sold
to the buyer.
• Recognise a financial liability @ transfer proceeds
of $10 million.
• Recognise a financial asset @ transfer proceeds of
$10 million.
(ii) Transfer of asset is sale
Seller Lessor
• Derecognise the asset @ $8.4 million1
• Recognise purchase of the asset @ $10 million (fair
value = proceeds)
• Recognise lease liability @ PV of lease rentals2
• Apply lessor accounting
• Recognise a right-of-use asset, as a proportion of
the previous carrying value of underlying asset 3
• Gain/loss on rights transferred 4
DR Bank $10,000,000
DR Right of use asset3 (W2) $6,486,257
CR Lease liability2 (W1) $7,721,735
CR PPE – Building1 $8,400,000
CR Gain on transfer4 $364,522
(W1) Lease liability = PV of lease rentals at rate implicit in the lease = $1 million x AF1-10@5%
Lease a = $1 million x 7.722 = $7,721,735
(W2) $ $
Right-of-use retained 7,721,735 77.22% 6,486,257
Rights transferred 2,278,265 22.78% 1,913,743
Total 10,000,000 100.0% 8,400,000

How did we calculated the annuity factor? Is it brought forward knowledge from another course?

Thank you.