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.