Portier Ltd sold a shopping centre and car park to Rosato Ltd for ($2) 500 000 cash

Question:

Portier Ltd sold a shopping centre and car park to Rosato Ltd for $$2$ 500 000 cash in March 2026, recording a profit of $$320$ 000. Portier Ltd gave Rosato Ltd an option to sell the shopping centre and car park back to Portier Ltd at any time after 30 June 2026, the end of Portier Ltd’s reporting period, for $$2$ 500 000. If Rosato Ltd exercised the option, there would be no cash flow to Rosato Ltd from Portier until two years had passed.

The shopping centre and car park has a current fair value of $$2$ 180 000 with minimal changes expected in this amount in the next three years.

Required

(a) Discuss the appropriate accounting treatment of this transaction in the accounting records of Portier Ltd. Ignore GST.

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