Page 437 - F2 Integrated Workbook STUDENT 2019

Answers

Example 6.7

Painting must remove the carrying amount of the machine from its statement of
financial position. It should instead recognise a right-of-use asset. This right-of-
use asset will be measured as the proportion of the previous carrying amount
that relates to the rights retained by Painting:

(1.9m/3m) × $1.2 million = $0.76 million.

The entry required is as follows:
$m

Dr Cash 3
Dr Right-of-use asset 0.76

Cr Machine 1.2
Cr Lease liability 1.9

Cr Profit or loss (bal. fig.) 0.66

Note: The gain in profit or loss is the proportion of the overall $1.8 million gain
on disposal ($3m – $1.2m) that relates to the rights transferred to Collage. This
can also be calculated as follows:

((3m – 1.9m)/3m) × $1.8m = $0.66 million.

The right-of-use asset and the lease liability will then be accounted for using
normal lessee accounting rules.

429