ABC company required funds to finance a new project that involves a huge amount of capital. The only possible way of raising funds is through the sale and leaseback of its head office building for a period of 10 years. The lease payments of RM1 million are to be made at the end of the lease period. The current fair value of the building is RM10 million and the carrying value is RM8.5 million. The interest rate implicit in the lease is 4.5%, while the incremental borrowing rate for ABC company is 5.5%.

required:

A) Advise ABC company on how to account for the above sale and leaseback transaction, in the companys financial statements, if the office building was to be sold at the fair value of RM10 million and:

1A) Performance obligations are not satisfied

2A) Performance obligations are satisfied