1. Cook to sell equipment to local finance company, provided they can lease it back. Purchased 2 years ago from Japanese manufacturer for $1,000,000 and being depreciated at 15% per year on declining balance. Estimates that the machine is currently worth $1,500,000.

-President (Harvey) of financial company can purchase the equipment for $1,500,000 and lease it back to Cook for $274,252 per year for the next 10 years, payable at the end of each year

-Cook has the option to repurchase the asset at the end of the lease term at estimated FV of $500,000 as it would be useable for another 5 years

-Estimate Cooks cost of capital to be 12%

-Harvey indicates he has to make at least 15% to earn profit on the lease

-Cook eager to complete transaction in an effort to improve company profitability (recording gain on the sale of equipment) and concurrently reduce the companys debt level (by using the sale proceeds to pay down a loan of $1,500,000 with a 12% interest rate)

Journal entries and accounting policies for sale-lease back transactions under IFRS and ASPE