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On 1 January 20X1, Mosaic sells an item of machinery to Ceramic for $2.5 million. Its fair value was $2.8 million. The asset had a carrying amount of $1.2 million prior to the sale. This sale represents the satisfaction of performance obligation, in accordance with IFRS 15 Revenue from Contracts with Customers.
Mosaic enters into a contract with Ceramic for the right to use the asset for the next five years. Annual payments of $500,000 are due at the end of each year. The interest rate implicit in the lease is 10%. The present value of the annual lease payments is $1.9 million.
Are the below mentioned journal entires correct?
Dr.ROUA 0.81m(1.9/2.8×1.2)
Dr. cash 2.5m
Cr.Profit (bal) 0.21m
Cr.asset 1.2m
Cr.lease liability 1.9mMany thanks as always!
I think the RofU asset is (PVFLP / FV x CA) plus (FV – Proceeds)
Or (1.9 / 2.8 x 1.2) + (2.8 – 2.5). The last part is seen as a prepayment of lease rentals.
That’s the formula. Not sure that all the study manuals have their examples right.
Exam will probably have a sale at FV.
Noted the above entry for lessee! Its pretty interesting!
but sirJournal entry will lessor pass?
Dr. machinery 2.8
cr. cash 2.5
cr. ?
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