asset) will be either profit or loss. Such profit or loss is not recognized immediately bu is spread oer the
lease term in proportion to the depreciation of the asset. cardinal should not recognize full profit / loss in the
same grade. The reason being the same asset is get back and capitalized by the lessee with different
amount, which is nothing but revaluation of asset. As the asset is sold at the end of 5th year, carrying
amount has to be calculated:
stride 1? Calculation of Carrying bar:
Year Cost Depn. WDV
1 1,00,000 10,000 90,000
2 1,00,000 10,000 80,000
3 1,00,000 10,000 70,000
4 1,00,000 10,000 60,000
5 1,00,000 10,000 50,000
Selling Price = Rs. 60,000 (assume to be fair value)
Step 2? Determination of Finance Lease or operational Lease :
Standing as on the sixth year opening day on which asset is sold taboo on Sale lease back basis lets
construe whether the lease is FL or OL.
PV (MLP) @7.93% = 15,000 (Rent) x Cum. PVF@7.93% = 15,000 x 4 = 60,000
PV of amount MLPs = 60,000
PV of Total MLPs is more than Carrying amount (CA represents FV of the asset), accordingly the lease is a
finance lease.
Lessee will record the asset at Rs. 60,000.
If Sale and lease back is a Finance lease: The difference between (Sale proceeds - Carrying amount of
asset) will be either profit or loss. Such profit or loss is not recognized immediately bu is spread oer the
lease term in proportion to the depreciation of the asset. superstar should not recognize full profit / loss in the
same year. The reason being the same asset is original back and capitalized by the lessee with different
amount, which is nothing but revaluation of asset. As the asset is sold at the end of 5th year, carrying
amount has to be calculated:
Step 1? Calculation of Carrying tot:
Year Cost Depn. WDV
1 1,00,000 10,000 90,000
2 1,00,000 10,000 80,000
3 1,00,000 10,000 70,000
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