On 1 April 20X7 Arun sells an item of plant to a finance company and leases it back for a period of five years, at the end of which the fair value of the plant is estimated to be nil.

Which of the following represents the correct accounting treatment for this transaction?

A Recognise the profit on disposal in the current year, capitalise the new lease at the present value of the lease payments

B Spread the profit on disposal over five years, capitalise the new lease at the present value of the lease payments

C Ignore the disposal, treat the sale proceeds as a financial liability

D Revalue the plant to the value of the sale proceeds, treat the sale proceeds as a financial liability