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#17: Question for the day (Adv. Acc - Inter)
Accountancy
Write the answer in a sheet as you would write in exam and send photo by 8pm. #LetsPractice Monu Ltd. sold machinery having WDV of Rs. 400 lakhs to Sonu Ltd. for Rs. 500 lakhs and the same machinery was leased back by Sonu Ltd. to Monu Ltd. The lease back was in nature of operating lease. Explain the accounting treatment as per AS 19 in the following cases: (i) Sale price of Rs. 500 lakhs is equal to fair value. (ii) Fair value is Rs. 450 lakhs and sale price is Rs. 380 lakhs. (iii) Fair value is Rs. 400 lakhs and sale price is Rs. 500 lakhs. (iv) Fair value is Rs. 460 lakhs and sale price is Rs. 500 lakhs.
Answers (2)
Correct answer below. Please refer and evaluate. Following will be the treatment in the given cases: (i) When sales price of Rs. 500 lakhs is equal to fair value, Monu Ltd. should immediately recognise the profit of Rs. 100 lakhs (i.e. 500 â?? 400) in its books. (ii) When fair value of leased machinery is Rs. 450 lakhs & sales price is Rs. 380 lakhs, then loss of Rs. 20 lakhs (400 â?? 380) to be immediately recognised by Monu Ltd. in its books provided loss is not compensated by future lease payment. (iii) When fair value is Rs. 400 lakhs & sales price is Rs. 500 lakhs then, profit of Rs. 100 lakhs is to be deferred and amortised over the lease period. (iv) When fair value is Rs. 460 lakhs & sales price is Rs. 500 lakhs, profit of Rs. 60 lakhs (460-400) to be immediately recognised in its books and balance profit of Rs. 40 lakhs (500-460) is to be amortised/deferred over lease period.
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