Adjustment : Immediately prior to the year end(31 May 2003), Robby sold land to a third party at a price of 16m with an option to purchase the land back on 1 July 2003 for 16m plus a premium of 3%.The market value of the land is 25m on 31 May 2003 and the carrying value was 12m.Robby accounted for the sale consequently eliminating the bank overdraft at 31 May 2003.
In the answer its been adjusted with this entry :
Dr Land 12
Dr PnL 4
Cr Current laibilities 16
I understood this whole but my doubt is current liability has been credited to reverse the previous debut of bank overdraft , but why they havent accounted for 16m once more like first to reverse previous mistake of bank overdraft and second to recognise a loan?
Ask the Tutor ACCA SBR
Consolidated Financial Position
10y ago#1This is surely just the pledging of the land as security for the overdraft.
It's only a one month transaction so not really a loan. I'm happy to see it as security rather than as a sale or a loan
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