OpenTuition | ACCA | CIMA

Free ACCA and CIMA on line courses | Free ACCA, CIMA, FIA Notes, Lectures, Tests and Forums

Effect on gearing

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Effect on gearing

  • This topic has 2 replies, 2 voices, and was last updated 8 months ago by zhao0702.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • May 15, 2020 at 4:01 pm #570948
    zhao0702
    • Topics: 31
    • Replies: 45
    • ☆☆

    Hi Sir

    This is a question in BPP kit–
    How will this effect gearing:
    ‘Selling’ an asset under a sale and leaseback agreement
    I think it will increase gearing ratio since if it’s not a real sale, we should recognize the transfer proceeds as a liability, thus increase the gearing ratio. Would you please kindly correct me if I’m wrong, thank you so much!

    May 17, 2020 at 10:17 am #571107
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 4896
    • ☆☆☆☆☆

    Hi,

    You’re correct. If there is not a real sale then we retain the asset in our books but the liabilities will increase as the liabilities increase, hence increasing the amount of debt and the level of gearing.

    Thanks

    May 18, 2020 at 4:09 pm #571198
    zhao0702
    • Topics: 31
    • Replies: 45
    • ☆☆

    Thank you sir

  • Author
    Posts
Viewing 3 posts - 1 through 3 (of 3 total)
  • You must be logged in to reply to this topic.