- This topic has 3 replies, 2 voices, and was last updated 3 years ago by
.
- Posts
Note: If the proceeds are less than the fair value of the asset or the lease payments are less than market rental, the following adjustments to sales proceeds apply:
– Any below-market terms should be accounted for as a prepayment of the lease payments; and
– Any above-market terms should be accounted for as additional financing provided to the lesseeExample
If the proceeds were $8.00m, would these journal entries be correct?
Dr Bank 8.00
Dr RTUA 6.49
Dr SPL – Lease prepayment 2.00
Cr Lease liability 7.72
Cr Building 8.40
Cr SPL – Gain 0.37If the proceeds were $10m and annual lease payment is $0.1m less than market rental ($1.1), would these journal entries be correct?
Dr Bank 10.00
Dr RTUA 5.90
Dr SPL – Loss 0.22
Cr Lease liability 7.72
Cr Building 8.40First one – perfect
Second one – would need to be told the MV of the asset at disposal date. If MV < proceeds, your approach is probably right
The exam is very straightforward – so he’s likely to test sale at MV
Keep it simple!
- The topic ‘Example 7 – Sale and leaseback – Ref.: Page 85’ is closed to new replies.