• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>

IFRS 16 Sale and Lease back

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › IFRS 16 Sale and Lease back

  • This topic has 5 replies, 4 voices, and was last updated 2 months ago by Stephen Widberg.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • May 6, 2022 at 8:26 am #655031
    earphonelady
    Member
    • Topics: 4
    • Replies: 8
    • ☆

    Dear Sir,

    Is it still have the method of using the proportional right of use asset?

    Question;
    Cherry sold a building for its fair value of $5 million to a finance company on 30 November
    20X6 when its carrying amount was $3.5 million. The building was leased back from the
    finance company for a period of 5 years. The remaining useful life of the building was
    deemed to be 25 years so it can be concluded that control of the building has transferred to
    the finance company. Lease rentals are $440,000 payable annually in arrears. The interest
    rate implicit in the lease is 7%. The present value of the annual lease payments is $1.8
    million. Cherry has recorded the cash proceeds, derecognised the building, and recorded a
    profit on disposal of $1.5 million in the statement of profit or loss. No other accounting
    entries have been posted.

    My answer is that: View on the Lessee’s point.

    Dr ROU assets $1.8m (Depreciation follow in next year)
    Cr Financial Lease liability $1.8m (interest paid follow in next year and cash paid of $440)

    Dr cash $5m
    Cr PPE $3.5m
    Cr gain on disposal $1.5m

    But the Kit book answer is that
    The correcting entry required is as follows:
    Dr Right of use asset $1.26m
    Dr Profit or loss $0.54m
    Cr Lease liability $1.80m

    We do need to follow which method Sir, I am confusing about this and not sure which method is the newly created.

    Thank you so much.

    May 8, 2022 at 8:35 am #655173
    Stephen Widberg
    Keymaster
    • Topics: 14
    • Replies: 2873
    • ☆☆☆☆☆

    Please don’t copy and paste whole questions in this forum. 🙂

    Right of use asset should be:

    PVFLP / FV x CA

    This ties in with your kit.

    I quite like your answer and wish you had written the standard, but, alas, it’s wrong!

    December 28, 2022 at 4:40 pm #675155
    syntaxerror
    Participant
    • Topics: 6
    • Replies: 6
    • ☆

    hi
    why is the sale and leaseback rou’s treatement the way it is and what’s the logic behind it?
    thanks

    December 30, 2022 at 8:04 am #675183
    Stephen Widberg
    Keymaster
    • Topics: 14
    • Replies: 2873
    • ☆☆☆☆☆

    We are replacing PPE with a RofU asset.

    The RofU asset is a proportion of the former PPE’s carrying amount.

    The proportion is determined by comparing the fair value of what the lessee is paying with the fair value of the asset as a whole.

    For detail, please re-watch our sale and leaseback lecture.

    January 17, 2023 at 4:19 am #676698
    housingacross
    Participant
    • Topics: 0
    • Replies: 1
    • ☆

    @the backrooms

    In fact, I wish you had created the rulebook since I really appreciate your solution. The value of the RofU asset is based on a percentage of the book value of the ex-PPI.

    January 17, 2023 at 11:38 am #676760
    Stephen Widberg
    Keymaster
    • Topics: 14
    • Replies: 2873
    • ☆☆☆☆☆

    100 yes. Perfect summary.

  • Author
    Posts
Viewing 6 posts - 1 through 6 (of 6 total)
  • The topic ‘IFRS 16 Sale and Lease back’ is closed to new replies.

Primary Sidebar

ACCA News:

 

ACCA My Exam Performance for non-variant Applied Skills exams is available NOW

NEW! Download the ACCA Pass Guide

FREE Verifiable CPD for ACCA Members

ACCA mock exams and debrief videos

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

Donate

If you have benefited from OpenTuition please donate.

ACCA CBE 2023 Exams

Instant Poll * How was your exam, and what was the result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Specially for OpenTuition students

20% off BPP Books

Get BPP Discount Code

Latest comments

  • John Moffat on Investment Appraisal – NPV, IRR – ACCA Management Accounting (MA)
  • Hi?n on Investment Appraisal – NPV, IRR – ACCA Management Accounting (MA)
  • Ken Garrett on ACCA AB Chapter 19 – Macroeconomics – Questions
  • Ken Garrett on ACCA AB Chapter 19 – Macroeconomics – Questions
  • Ken Garrett on ACCA AB Chapter 19 – Macroeconomics – Questions

Copyright © 2023 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in


We use cookies to show you relevant advertising, find out more: Privacy Policy · Cookie Policy