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Hi Mike, referring to sale and leaseback question in June 2013 Q3(b),
As the requirement is matters to be considered,
As per suggested solution, the answers are explaining the correct treatment of the the leaseback as a finance lease, what entry should have been made in the journals and also depreciation should be calculated on the amount.
What if, I argue in a different way, instead of saying whether it met the criteria under finance lease, i explain that it is a mere loan arrangement, and the proceed of $37mil received should be DR. Cash, CR. Loan.
I think a few past year argue it this way abou sale n leaseback, however, why in June 2013, the examiner’s answer approach it in a different way?
The only reason for treating it as a loan would be if it were not a genuine sale ie the “borrower” still retained possession of the asset but was using it effectively as security for the money received.
If risks and rewards are not transferred, then it’s not sale and leaseback
Ok?
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