Question 1

a)Rice owned a building on which it raised finance. Rice sold the building for $5 million to a finance company on 1 June 2022 when the carrying amount was $3.5 million. The same building was leased back fromthe finance companyfor a period of twenty years, which was felt to be equivalent to the majorityof the asset's economic life. The lease rentalsfor the periodare $441,000 payableannually in arrears.The interest rate implicit in the lease is 7%. The present value of the minimum lease payments is the same as the sale proceeds.

Rice wishesto know how to accountfor the above transaction for the year ended 31 May 2023.

(13 marks)

b)On 1 June 2020, Rice granted 500 share appreciation rights to each of its twenty managers. All of the rights vest after two years' serviceand they can be exercised during the following two years up to 31 May 2024. The fair value of the right at the grant date was $20. It was thought that three managers would leave overthe initial two-yearperiod and they did so. The fair value of each right was as follows.

Year Fair value at the year-end ($)

31May 2021 23

31May 2022 14

31 May 2023 24

On 31 May 2023, sevenmanagers exercised theirrights when the intrinsic valueof the right was $21.

Rice wishes to know what the liabilityand expense will be at 31 May 2023. (12 marks)

Required

Discuss, withsuitable computations, the advice that should be given to Rice in accounting for theabove events. [25 marks]