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sale/repurchase

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › sale/repurchase

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by MikeLittle.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 23, 2015 at 10:52 pm #284809
    mansoor
    Member
    • Topics: 424
    • Replies: 542
    • ☆☆☆☆

    in a question, we are only supposed to prepare the sopl

    the plant/equipment cost and accum. dep given in the TB is Cost:98600, accum dep=24600

    an item of plant was sold for 50000 which was recognized in the revenue and its CV (40000) was recgonized in the COS.

    it was leased back at the same date for the remaining period of its useful life of 5 years …bla bla .. and all my calculations are correct…EXCEPT THE 2000 in the reversal entry below:

    Dr Revenue 50,000
    Cr COS 40,000
    Cr profit on sale (yr 1)2000
    Cr deferred income (4 yrs) 8000

    in other words, my COS was off by 2000. my thinking was that once we take out the revenue and costs, the profit will be adjusted automatically. basically i dont get this entry.

    also, i have a follow up and will wait till u answer this one

    thanks!!

    November 24, 2015 at 12:10 am #284811
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22714
    • ☆☆☆☆☆

    The entry should be Dr Cash 50,000, Cr Obligation under finance lease account 40,000, Cr Loan account 10,000 (assuming that 40,000 is the fair value)

    If 50,000 is the fair value, that last credit to the loan account would be Cr Deferred Income account 10,000 and then feed that into Profit or Loss at the rate of 2,000 each year for the next 5 years.

    Mansoor, there is an example of exactly this in the free course notes!

    November 24, 2015 at 4:13 am #284818
    mansoor
    Member
    • Topics: 424
    • Replies: 542
    • ☆☆☆☆

    ok.. will look at it…

    November 24, 2015 at 8:14 am #284842
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22714
    • ☆☆☆☆☆

    Good! Just a little surprised that that wasn’t your starting point!

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