Question
Example 8 Company A sells an office building to company D for cash of RM20,000,000. Immediately before the transaction, the building is carried at a
Example 8
Company A sells an office building to company D for cash of RM20,000,000. Immediately before the transaction, the building is carried at a cost of RM10,000,000. At the same time, A enters into a contract with D for the right of use (MFRS 16) the building for 18 years with annual payments of RM1,200,000 payable at the end of each year (payment in arrears; sale and leaseback). The transfer of the office building qualifies as a sale under MFRS 15 (revenue is recognised when the goods or services are transferred to the customer, at the transaction price). The fair value of the office building on the date of sale is RM18,000,000. Since the consideration for the sale of the office building is not at fair value, A and D make adjustments to recognize the transaction at fair value.
The incremental borrowing (interest) rate of the lessee is 4.5% per annum. The present value of the annual payments is RM14,592,000 of which RM2,000,000 relates to the additional financing and RM12,592,000 relates to the lease.
Required:Show the journal entries at the commencement of the lease.
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