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On 1 jan 20×6 Lotso sold its head office to a finance company,but continued to use the head office for the remainder of its 20 year estimated useful life under a lease agreement. The carrying amount of the head office on 1 Jan 20×6 was $10 million and the fair value of the asset and sale proceeds received on 1 jan 20×6 were $11.5 million.
What would be the carrying amount of the head office as at 31 dec 20×6?
I obtained 9.5 $m as carrying amount as at 31 dec 20×6. As it is a sale & leaseback transaction & seller-lessee retains full benefit of the asset over its remaining life, we have to consider the $10m and depreciate it over 20 years, thus depreciation = 0.5 m $.
But the answer in the kaplan revision kit is C ( 8.075$m ). Could you please sir clarify if the workings are good ?
I don’t believe that you have given me full information here! From what you have given me I can’t arrive at $8,075,000
Is there no explanation in the Kaplan answer?
The explanation in kaplan arrived at the same answer of $9.5m . i think there might be a mistake,mistyping error in the final option should have been” B” (9.5) instead of C(8.075) . otherwise the explanation provided uses the same logic
That’s good to know! One thing still intrigues me though, although I don’t expect you to be able to answer it … ‘wrong’ answers in mcqs (called ‘distractors’) are normally figures that you would arrive at if you had made one (or more) mistake(s) in your calculations
No matter how hard I try to arrive at $8,075, I can’t get there :-((
Not to worry – I’m just glad for you that your calculations were correct
OK?
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