Sale and Leaseback transaction

Dear Mike,

Below an example of BPP texbook but I am struggle to understand how to treat the accounting entry when we buy back the asset and the entry for deferred income/profit on disposal.

Could you please help. Sorry for long questions and confusion but I am completely lost with this topic.
Thanks and Regards

Gabriella

Capital Co entered into a sale and finance lease on 1 April 20X7. It sold a lathe with a carrying amount of
$300,00 for $400,00 and leased it back over a five-year period, equivalent to its remaining useful life.
The finance lease provided for five annual payments in arrears of $90,000. The rate of interest implicit in
the lease is 5%.
Required
What are the amounts to be recognised in the financial statements at 31 March 20X8 in respect of this
transaction?
Answer
$
Statement of profit or loss
Profit on disposal (100,000/5) 20,000
Depreciation (400,000/5) (80,000)
Interest (W) (20,000)
Statement of financial position
Non-current asset
Property, plant and equipment (400,000 – 80,000) 320,000
Non-current liabilities
Finance lease liability (W) 256,500
Deferred income (100,000 × 3/5) 60,000
Current liabilities
Finance lease liability (330,000 – 256,500) (W) 73,500
Deferred income (100,000/5) 20,000
Working – lease liability
$
1 April 20X7 400,000
Interest 5% 20,000
Instalment paid (90,000)
Balance 31 March 20X8 330,000
Interest 5% 16,500
Instalment paid (90,000)
Balance 31 March 20X9 256,500