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For the following question, it shouldnt be recognised as a sale. Instead it should be recognised as a secured loan. But the answer i got for the amount to be shown in SOPL is
4.84m x 10% = 484 000
But the answer given is 400 000 expense.
Why?Qn) Almeyda entered into a sale and repurchase agreement for its head office on 1 jan, selling the office to a bank for $4m. At this date, the office had a fair value of $6m. Almeyda will continue to use the office for the next 2 years and has the option to buy back to property for $4.84m, based on an effective interest rate of 10% per year over the next 2 years. Property prices are expected to increase over the next 2 years.
What is the net amount to be shown in the SOPL for the year ended 31 december 20X1 ?
On 1 January, 2011 (say) Almeyda borrows $4,000,000 at the compound interest rate of 10% so that, on 31 December, 2012 Almeyda will pay to the bank ($4,000,000 + 10%) + 10%)
4,000,000 + 400,000 = 4,400,000 obligation at end of 2011
4,400,000 + 440,000 = 4,840,000 payable at the end of 2012
I assume the question asks you for the finance costs for the year 2011?
In which case, the figure you’re looking for is $400,000
But there’s also depreciation to consider and you’ve not given me sufficient information about that
OK?
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