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ACCA Strategic Professional · Strategic Business Reporting (International) · Leases

Evra Co sells equipment with a carrying amount of $800,000 for $1,000,000 cash, equal to fair value, and leases it back for 5 years. The transfer is a sale. The present value of lease payments is $400,000. In Evra's statement of financial position immediately after the transaction, what is the right-of-use asset?

The right-of-use asset is $320,000. It is measured at the asset's previous carrying amount of $800,000 multiplied by the proportion of rights retained, being the lease liability of $400,000 divided by fair value of $1,000,000, which is 40%.

  1. A$400,000
  2. B$320,000Correct
  3. C$800,000
  4. D$1,000,000

Explanation

The right-of-use asset is the previous carrying amount multiplied by the proportion of rights retained: 800,000 x (400,000 / 1,000,000) = 320,000. Using the lease liability of $400,000 ignores the carrying-amount basis. Using $800,000 or $1,000,000 ignores that only part of the rights is retained.

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