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Sale and leaseback – Example 3

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Sale and leaseback – Example 3

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by P2-D2.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 22, 2021 at 3:01 pm #638798
    ty0311
    Participant
    • Topics: 17
    • Replies: 5
    • ☆

    Hi Chris,

    In regards to the answer to (a) of the Example 3 question whereby we recognise the proceeds of $10m as Financial Liability, I was wondering how to calculate the amortised cost with the information in the question.

    My understanding of amortised cost is that in the 1st year, we have a b/f liability value of $10m, the effective rate (market rate interest) should be 5%, but what about the ‘coupon rate’ or the cash outflow that I need to derive at the c/f figure to show on the SFP at the end of the 1st year, and the same for the subsequent 9 years?

    Thanks and Regards,
    Tim

    October 23, 2021 at 9:23 am #638855
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6473
    • ☆☆☆☆☆

    Hi Tim,

    The figure that you are missing is the $1 million lease payment each year, this is to be treated as the ‘coupon’ payment that we would usually see under the amortised cost method.

    Thanks

    October 23, 2021 at 5:51 pm #638932
    ty0311
    Participant
    • Topics: 17
    • Replies: 5
    • ☆

    Thanks for the guidance. Does this mean the c/f balance of the Financial Liability to show on the SFP at the end of the first year would be $10m + (10m*0.05) – $1m = $9.5m?

    By doing this, I wouldn’t be able to end up at Nil value at the end of the 10 years’ lease.

    Thanks again.

    Regards,
    Tim

    October 30, 2021 at 9:30 am #639444
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6473
    • ☆☆☆☆☆

    It should end up at nil at the end of the lease but don’t worry if it doesn’t in the example. The key is to understand the principles.

    Thanks

  • Author
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