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Dear Tutor,
In Q59 Angelino (BPP exam revision kit) in (ii) Angelino sold its freehold building with EUL of 20 years for 12 mln and rented it back for 1.3 mln for 5 years. The auditors say FV of building is 10 mln and a rent of a similar building is 800K. Finance cost is 10%.
Answer: sale must be recorded at 10 and the additional 2 mln must be recorded as a loan. This I have no problem with. Now, 0.5 rent above market value must be treated as loan repayments. So, what happens to 0.8 then?
Would be grateful for any help!!!!!
Many thanks!
ValentinaI asked my tutor the same quesstion and he told me that Sale and lease back has been pushed to P2 so I don’t think its there for F7 and that you hsouldn’t worry about it
valentina – the 800,000 must be operating lease rental payments
vedavyas – substance over form is CERTAINLY in the syllabus and Angelino looks very much like an appropriate question
Sir I know that substance over form is a valid question, I’ve been told by mu tutor that sale transaction actually made as a loan is the only thing that comes, not sale and lease back…
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