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I’ve learned from my F7 that a sale and leaseback (finance lease) is not a sale but a secured loan (substance over form). The asset is not derecognised and a loan is recognised instead.
In P2 I’ve learned that the above is treated as follows.
DR Cash
CR Asset
CR Deferred incomeDB Asset
CR Finance lease obligationAnd the deferred income is amortized over the lease term.
Why isn’t it treated as secured loan (like in F7)? Which treatment is the correct one? I’m confused.
It wasn’t me that said it was a secured loan at F7. I may have said that it’s like a secured loan but the credit entry at F7 will be to the finance lease obligation account – the same as it does at P2
If you think about this for a moment you will realize that the issue is merely a matter of nomenclature ie what do you want to call the account that records the obligation? Secured Loan account, Finance Lease Obligation account or even Snowwhite and the Seven Vertically Challenged Persons account?
It does not matter what title you give to the account – what matters is that the readers of the accounts are given a fair representation of the facts pertaining to the transactions and balances (and therefore the results and state of financial position) and they wouldn’t be if you called the obligation after some apple-loving naive young lady
Does that help?
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