Skyline Construction Limited is in need of funds to finance a new project they are working on. One of the directors suggest sale and leaseback of a property that they own to Renovators Limited. This lease arrangement would be for a period of 8 years. The lease payments of $2 million are to be made at the end of the lease period.

The current fair value of the building is $16 million and the carrying value is $9 million. The interest rate implicit in the lease is 5%.

1. Discuss the benefits of a Sale and Leaseback arrangement to Skyline Limited ( 8 marks)
2. Advise Skyline Limited on how to account for the sale and leaseback in its financial statements if the office building were to be sold at the fair value of $16 million and the transfer is a sale.