Question 1

SECTION A

On 1 July 20X6, LogisticsPro Co entered into a sale and leaseback transaction for a fleet of delivery trucks. The trucks had a carrying amount of $2,000,000. They were sold to a finance company for their fair value of $3,000,000 and immediately leased back for 5 years. The transaction satisfies the requirements of IFRS 15 to be accounted for as a sale. The present value of the lease payments is $1,800,000.

What is the gain on rights transferred to the buyer-lessor to be recognized in profit or loss?

Accepted Answer

1. Calculate total potential gain (Fair Value - Carrying Amount). 2. Determine the proportion of the asset retained (PV of lease payments / Fair Value). 3. Determine the proportion transferred (1 - proportion retained). 4. Multiply total gain by the proportion transferred to find the recognized gain.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Recognizing the full $1,000,000 gain, which was the old IAS 17 treatment for operating sale and leasebacks.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 1

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