At the beginning of the current year. Matthias Company sold an equipment to Ricky Corporation for P960.000.
Question:
At the beginning of the current year. Matthias Company sold an equipment to Ricky Corporation for P960.000. an amount that is equal to its fair value. Because of Matthias Company's commitments to its customers to provide their needs for the next four years.
Matthias Company immediately leaseback the said equipment.
Information relating to the sale and leaseback transaction is as follows :
Fair value of the equipment-P880,000
Carrying amount of the equipment-P680.000
Annual rental payable at the end of each lease year-200.000
Useful life of the equipment -10 years
Lease term-4 years
Implicit rate in the lease- 10%
Present value of an ordinary annuity of 1 at 10% for 4 periods - 3.1699
Requirment:
1. What amount should be recorded for right of use asset at the commencement of the lease?
2. What amount should be recognized as gain on sale and leaseback?
Understanding Financial Accounting
ISBN: 978-1118849385
1st Canadian Edition
Authors: Christopher Burnley, Robert Hoskin, Maureen Fizzell, Donald