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Hi Sir good day to you.
I have a question regarding to lease. Below is the question from kaplan exam kit.
At year end, an entity leased out equipment under a 10 year finance lease. the selling price of the leased item was $50 m and the PV of the fixed lease payment discounted at a market rate of interest was $47 m. the carrying amount of the leased asset was $40 m and the PV of the unguaranteed residual value is estimated to be at $2.8m. The entity has shown sales of $50 and cost of sales of $40 m in its financial statement.
The solution gives 2 adjustments:
Dr P/L 3m
Cr Lease receivable 3 m
Dr Lease receivable 2.8 m
Cr P/L 2.8 mI understand the solution. but may I know how to deal the selling price of $50 m, the carrying amount of $40 m and the accounting error?
Thank you very much 🙂
Hi,
When they have removed asset from the entities books they have CR PPE DR C’o’S and then with the proceeds we DR Receivable Cr Revenue.
Thanks
Thank you sir for your fast reply. I am still not sure how to record the transaction correctly in SPL. As far as I know we need to:
Dr bank 50
Dr lease receivable 47+2.8
Cr ppe 40May I ask how to make them balanced?
Thank you very much
Hi,
The receivable needs to be 49.8 and is currently 50, so it is credited with the 0.2 and the balancing figure taken through profit or loss.
Thanks
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