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see in theopen tution notes page 92 about operating leases and leaseback. for operating leases.
sp= 6500, cv= 8000, fv = 7050
we CR ppe 8000
DR cash 6500
DR loss PPE 950
DR deferred loss 450the $950 do we deduct that from PPE? or revaluation loss? the deferred loss would be 450 amortised over the lease term?
and the next one is sp 8600, cv 8000, fv 9000
CR PPE 8000
DR cash 8600
cr deferred income 600do we just ignore the fair value? the $1000?
Hi Kerri
I believe that the figure (7,050) that you have quoted for fair value should be 7,000 according to my version of the course notes
So impair the 8,000 carrying value down to 7,000 fair value by Dr PorL 1,000 Cr TNCA 1,000
Now we’re looking at a revised cv of 7,000 but we only receive 6,500 on sale so a further loss of 500 is sustained
But we may have agreed with the lessor that he should only pay us 6,500 immediately in exchange for charging lower annual repayments so the double entry to deal with the sale is Dr Cash 6,500, Dr Deferred Loss 500 and Cr TNCA Disposals with 7,000
In answer to the second part of your post, yes, ignore the fair value. The difference between 9,000 fair value and the selling price is automatically recognised over the period of the lease by us repaying only 8,600 instead of the 9,000 and since that 8,600 is paid over a period of time, that will automatically spread the additional 400 profit
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