Question 1

**Section A**

LogisFast, a logistics company, sold its main distribution hub to a finance house for $10 million (which is its fair value) and immediately leased it back for 15 years. The carrying amount of the hub prior to the transaction was $6 million. The transaction satisfies the requirements of IFRS 15 to be accounted for as a sale. The present value of the lease payments is $8 million.

What amount of profit on the sale should LogisFast recognize immediately in profit or loss?

Accepted Answer

In a sale and leaseback that qualifies as a sale, the seller-lessee only recognizes the proportion of the gain that relates to the rights transferred to the buyer-lessor. Calculate total gain, then multiply by (1 - (PV of lease payments / Fair value)).

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Recognizing the full $4m profit, 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 5

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