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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)
By using the below method I can get 15.312
Could you kindly explain me this in detail please?
Contract Asset 195.3125
Lease liabi 250
Additional finance cost 50
balance 565.3124 565.312
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?
This is from BPP notes page 299.
I took a picture of the notes but couldn’t find a way to post it.
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.
Thank you sir.
I will follow your advice in the exam.