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Hi Sir,
Can you please help me understand how selling an asset under sale and leasing it back agreement reduces the gearing ratio?Hi,
It would depend on if the transfer is a sale or not.
If the transfer is not a sale then there will be a financial liability recognised for the proceeds received, so gearing would increase as the level of debt has increased.
If the transfer is a sale and the part of the asset is derecognised then it would all depend on the level of the rights retained as to what would happen with the gearing.
Where have you seen this scenario specifically? Let me know and I can look at it further.
Thanks
It is at true/false in BPP kit.
And as per your above explaination for 1st scenario it will increase the gearing ratio and not decrease, but as per answer provided it was decreased, could you please explain a bit further
its an MCQ question :
Starts with Creative accounting measures ..
and in this the last one
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