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On 1 January 20X4, Stark entered into a sale and leaseback of its property. When it was sold, the asset had a carrying amount of $6 million and a remaining life of 10 years Stark sold the asset for $7 million and leased it back on a 10 year lease, paying $1 million on 31 December each year. The lease carried an implicit interest rate of 7%.
What is the total expense that should be recorded in the statement of profit or loss for the year ended 31 December 20X4?
My question – Why transfer is not a sale in here?
Thanks in advance Sir.
I would not treat it as a sale as we still have control over the asset given that we are using it for the 10 years of its life.
It would be treated as a sale if we did not have control over the asset.