Page 403 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Answers

Example 6.4

Big Ronnie has entered into a sale and operating leaseback at greater than fair
value.

Initially Big Ronnie should record the disposal of the PPE, with any gain or loss
up to fair value taken to profit or loss and the excess above fair value deferred.

Sale of asset

Dr Cash 600k

Cr PPE 400k

Cr P/L 120k (520 – 400)

Cr Deferred income 80k (600 – 520)

Spread deferred income over lease term

Dr Deferred income 16k (80/5)

Cr P/L 16k

Record operating lease rental

Dr P/L 200k

Cr Cash 200k

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