ACCA Strategic Professional · Strategic Business Reporting (International) · Leases
Brava Co sells a machine to a finance company for $1,500,000 and immediately leases it back. The transfer qualifies as a sale under IFRS 15. The machine's carrying amount is $1,000,000 and its fair value is $1,500,000. The present value of the lease payments is $600,000, which is 40% of the fair value. What is the gain Brava recognises in profit or loss at the date of the transaction?
Brava recognises a gain of $300,000. The total gain is $500,000, but 40% relates to the right of use retained through the leaseback and is excluded. The gain recognised is only the 60% relating to rights actually transferred to the buyer-lessor.
- A$500,000
- B$300,000Correct
- C$200,000
- D$0
Explanation
Total gain = 1,500,000 - 1,000,000 = 500,000. The right-of-use asset is 40% of the carrying amount, so the gain relating to rights retained is 500,000 x 40% = 200,000 and is not recognised. The gain recognised is the portion relating to rights transferred: 500,000 x 60% = 300,000. Recognising the full gain ignores the retained rights; $200,000 is the retained portion.
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