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Dear sirs,
i wanted to ask about the treatment of the gain in the question in part b, the general rule for sale and leaseback for operating lease is that if the sale isn’t done at FV then the gain is immediately recognized, unlike in the finance lease where the gain is deferred and recognized over the term of the lease. so why is it that in the answer the gain of 30 million is recognized as deferred income (SOFP) and then the gain is released over the term over the lease?
is the treatment different cause in this case the asset leased under operating lease is recognized as an asset in Holcombe’s books?thanks
Hi,
The key here is that it is an older current issues question when the leases standard was being discussed, so the treatment is slightly different to what you would normally expect, as it would have been examining potential solutions to an accounting problem. You’re correct in your understanding that the specific capitalisation of the asset as mention is giving the different treatment.
Thanks
okay so if we encounter the same case scenario or something similar (operating lease being capitalized) should my accounting treatment be the same as this answer or should it be according to the current treatment of just recognizing the gain without deferring it?
Hi Sir,
Please, for lease classification b.ii) should not be the answer type B? … The conditions are clear except that is not about a property.
Thank you
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