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Sale and Lease back

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Sale and Lease back

  • This topic has 6 replies, 3 voices, and was last updated 1 year ago by P2-D2.
Viewing 7 posts - 1 through 7 (of 7 total)
  • Author
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  • March 3, 2022 at 6:33 pm #649749
    Hamsi
    Participant
    • Topics: 5
    • Replies: 10
    • ☆

    Hi sir,

    This sale and leaseback relates to a cutting machine purchased by Blocks Co on 1 January 20X4 for $300,000. The carrying amount of the machine as at 31 December 20X4 was $250,000. On 1 January 20X5, it was sold to Cogs Co for $370,000, the fair value of the asset was $320,000, and Blocks Co will lease the machine back for five years. The sale meets the revenue recognition requirements of IFRS 15 Revenue from Contracts with Customers. The financial liability is measured at $300,000 on 1 January 20X5, of which $50,000 relates to the additional financing.

    Blocks Co has elected not to apply the recognition requirements as permitted by IFRS 16 Leases.

    For agreement three, what profit should be recognised for the year ended 31 December 20X5 as a result of the sale and leaseback (to the nearest whole $)?

    The answer is 15312

    Why we couldn’t apply (PV/FV* gain )here

    Gain( sale-Cv) = 370- 250= 120

    Gain transferred = 120-(250/320*120)
    = 93.75

    By using the below method I can get 15.312
    Could you kindly explain me this in detail please?

    DB CR
    CV 250
    Sale 370
    Contract Asset 195.3125
    (PV/FV*CV)
    250/320*250

    Lease liabi 250
    Additional finance cost 50

    Gain 15.312

    balance 565.3124 565.312

    March 3, 2022 at 8:10 pm #649767
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7079
    • ☆☆☆☆☆

    Hi,

    I’m not too sure what you are doing in the first methodology. Where have we done the calculations as such as what is seen in the first methodology you perform?

    Thanks

    March 3, 2022 at 9:33 pm #649774
    Hamsi
    Participant
    • Topics: 5
    • Replies: 10
    • ☆

    Hi sir,
    This is from BPP notes page 299.
    I took a picture of the notes but couldn’t find a way to post it.

    Apologies.

    March 5, 2022 at 10:56 am #649879
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7079
    • ☆☆☆☆☆

    I’d look to stick with the method that gives you the right answer and not try to do anything different that looks like a shortcut that hasn’t worked.

    Thanks

    March 5, 2022 at 9:31 pm #649946
    Hamsi
    Participant
    • Topics: 5
    • Replies: 10
    • ☆

    Thank you sir.
    I will follow your advice in the exam.

    May 30, 2023 at 11:36 am #685462
    @acca
    Participant
    • Topics: 2
    • Replies: 7
    • ☆

    Hi Sir,
    Do we have to use the fair value of the asset or the sale proceeds in calculation of Right of use asset and profit or loss.
    In kaplan text: lease chapter- TYU 3 , The entry made is:
    dr. cash xxx
    dr. Right of use xxx (use formula)
    cr. machine xxx
    cr. lease liability xxx
    cr. profit ( bal fig.)

    June 8, 2023 at 12:19 pm #686505
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7079
    • ☆☆☆☆☆

    We use the fair value of the asset, take a look at the example in the class notes to see it with some numbers.

    Thanks

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