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In revenue chapter of bpp book of FR, there is a example related to put option which goes like this:
An entity sells an asset for $1m on 01 Jan 20X7 to a customer with a put option (customer can exercise the option) to require entity to buy the asset at $900,000 on or before 31 Dec 20X7 when the fair value of the asset will be $750,000.
Since there are no significant economic incentive to the customer it is probable that customer will exercise the right.
This transaction should be accounted as lease under IFRS 16.
Can you please explain what would be the journal entries for recognizing it as lease. And also for what if the right is not exercised.
Many thanksHi,
The asset would be recognised in the customers books as a right of use asset at $1m, with a corresponding lease liability of the same amount. The asset is then depreciated and interest charged on the lease liability.
I’d not get too concerned with this accounting treatment as you can spend a large amount of time trying to understand the complex detail and it not be seen in the FR exam.
Thanks
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