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How to account for sale and leaseback in financial statement

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Reference no: EM132518445

Bello Ltd. requires funds to finance a new ambitious rebranding exercise. The only possible way of raising finance is through the sale and leaseback of its head office building for a period of 10 years. The lease payments of $1 million are to be made at the end of the lease period.

  • The current fair value of the building is $10 million and the carrying value is $8.4 million. The interest rate implicit in the lease is 5%. (NB: PV factor 10 years @ 5% = 7.722)

 

Required

Based on IFRS 16- Leases, advise Bello Ltd on how to account for the sale and leaseback in its financial statements if the office building were to be sold at the fair value of $10 million in the situation where:

Question (a) The transfer of asset obligations are not satisfied; and

Question (b) Where the transfer of asset obligations are satisfied.

Reference no: EM132518445

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