Reference no: EM132512035

Clarence entered into the following sale transaction during the year:

a) On 1 January 2001, Clarence sold its head office to Seedorf, a finance company, for $5 million. Clarence continues to use the assets and is responsible for insuring and maintenance of the building. Clarence has the right to repurchase it for $6.05 million on 1 January 2003, representing a 10% growth in value each year. At 1 January, the head office was valued $11 million, with the carrying amount shown at $4 million. This value is expected to increase by January 2003.

b) On 31 December 2001, Clarence sells a machines plus spare parts to Edger for $500,000. The value of the machine was $480,000, with the value of spare parts being $20,000. Clarence delivered the machines on 31 December, but was asked to hold the spare parts by Edger, due to Clarence's warehouse being in close proximity to Edger's factory. Clarence expects to hold the spare parts for 2-4 years. The parts are kept separately in the warehouse, cannot be used or sold by Clarence, and are ready for immediate shipment at Edger's request. Clarence agreed to the transaction as it decided that holding costs would be insignificant.

Required

Question 1 : Discuss, with relevant quotations from IASB standards,the financial reporting treatment for the issues for the year ended 31 December 2001.