A company purchased an a asset on 1.1.x1 for $100,000, with a life of 5 years. On 1.1.x3 they sell the asset to a lessor company for the fair value of $70,000 and lease it back for 2 years with annual lease payment of $20,000 and guranteed residual value of $15,000. The lease has a rate of return of 10%. The amount to be recognised as right of use asset is?
May I know how to calculate the right of use asset for this question?
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SBRSale and Leaseback Question
Dr. Cash (Sale amount) 70,000
Dr. Right of Use asset (Carrying value * % of right retained) 17,144
Dr. Loss (Initial loss * % of right transferred) 7,857
Cr. Non-Current Asset (Note 1) 80,000
Cr. Lease Liability (PV of future payments - value provided in question) 15,000
Note 1: Calculating the carrying value of the asset
Value on 1/1/XXX1 100,000
Less: Depreciation (Value of the asset on 1.1.XXX3/ Useful life of the asset) = 20,000
Carrying value of the asset = 80,000
Initial Loss = 10,000
Note 2: Calculation of percentage of right retained & right transferred
Present Value (already provided in question) = 15,000
Sale Price = 70,000
Percentage of Right Retained (PV/Sale Price*100) = 21.43
Percentage of Right Transferred (100 - % of right retained) = 78.57
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