Question
On 1 January 2021, Madina plc sells an item of machinery to Tanoso plc for its fair value of GH3 million. The asset had a
On 1 January 2021, Madina plc sells an item of machinery to Tanoso plc for its fair value of GH3 million. The asset had a carrying amount of GH1.2 million prior to the sale. This sale represents the satisfaction of a performance obligation, in accordance with IFRS 15 Revenue from Contracts with Customers. Madina plc enters into a contract with Tanoso plc for the right to use the asset for the next five years. Annual payments of GH500,000 are due at the end of each year. The interest rate implicit in the lease is 10%. The present value of the annual lease payments is GH`1.9 million. The remaining useful life of the machine is much greater than the lease term. Required: Explain how Tanoso plc will account for the transaction in the financial statements for the year ended 31 December,2021
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