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    laayba
    The document discusses accounting for transfers that qualify as a sale in a sale-and-leaseback arrangement. When a transfer qualifies as a sale, the seller recognizes cash received, derecognizes the transferred asset, recognizes a right-of-use asset for any leased back portion, recognizes a lease liability, and recognizes any gain or loss from the sale portion. The example shows how to allocate the previous carrying amount and total gain or loss between the portion transferred and the portion retained as a right-of-use asset.

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    Section ACCA Study Hub

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    laayba
    312 views1 page
    The document discusses accounting for transfers that qualify as a sale in a sale-and-leaseback arrangement. When a transfer qualifies as a sale, the seller recognizes cash received, derecognizes the transferred asset, recognizes a right-of-use asset for any leased back portion, recognizes a lease liability, and recognizes any gain or loss from the sale portion. The example shows how to allocate the previous carrying amount and total gain or loss between the portion transferred and the portion retained as a right-of-use asset.

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    The document discusses accounting for transfers that qualify as a sale in a sale-and-leaseback arrangement. When a transfer qualifies as a sale, the seller recognizes cash received, derecognizes the transferred asset, recognizes a right-of-use asset for any leased back portion, recognizes a lease liability, and recognizes any gain or loss from the sale portion. The example shows how to allocate the previous carrying amount and total gain or loss between the portion transferred and the portion retained as a right-of-use asset.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    312 views1 page

    Section ACCA Study Hub

    Uploaded by

    laayba
    The document discusses accounting for transfers that qualify as a sale in a sale-and-leaseback arrangement. When a transfer qualifies as a sale, the seller recognizes cash received, derecognizes the transferred asset, recognizes a right-of-use asset for any leased back portion, recognizes a lease liability, and recognizes any gain or loss from the sale portion. The example shows how to allocate the previous carrying amount and total gain or loss between the portion transferred and the portion retained as a right-of-use asset.

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    of 1

     Table of Contents Next 

    4.2 Transfer is a Sale

    If the transfer qualifies as a sale the


    seller/lessee:

    Recognises the cash received;


    Derecognises the asset transferred;
    Recognises a right-of-use asset for the part
    of the asset leased back;
    Recognises a lease liability; and
    Recognises the gain or loss on the portion
    of the asset transferred to the buyer/lessor.

    This involves pro-rating the carrying amount of


    the derecognised asset and the total gain or
    loss (see Example 7).

    Example 7 Sale and Leaseback

    Haugh Co entered into a sale and


    leaseback arrangement on 1 January 20X7
    to sell an asset to CC Finance Company
    (CCFC) for $750,000 being the fair value of
    the asset. The asset had a carrying amount
    of $640,000 at that date and the agreed
    lease term was five years.

    The terms of the leaseback require Haugh


    Co to pay $120,000 per annum in advance
    for five years. Haugh Co’s incremental
    borrowing rate is 5%, giving an initial lease
    liability before any payments are made to
    CCFC of $546,000.

    The previous carrying amount of the asset


    is allocated between the transferred amount
    and the right-of-use asset retained based
    on the rights retained as a proportion of fair
    value:

    Carrying amount:

    right-
    of-use asset

    asset transferred

    The total gain of $110,000 ($750,000 −


    $640,000) is also apportioned on the same
    basis:

    gain
    relating to retained right-of-use
    (therefore not recognised)
    $110,000 − $80,080 = $29,920 gain
    relating to asset transferred (and
    therefore recognised by Haugh Co)

    The transaction is recorded as follows:

    Dr Cash $750,000
    Dr Right-of-use
    asset $465,920
    Cr Lease
    liability $546,000
    Cr Gain $29,920
    Cr Property,
    plant and
    equipment $640,000

    Category
    14.4 Sale and Leaseback

    Rate Your Confidence


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    You must mark your confidence level before


    continuing.

    Continue 

      6 

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