InvestorQ : R had been using an asset for is business and its W.D.V. as on 1.4.2019 was Rs.3,50,000 he sold this asset to G for Rs.5,00,000 and G leased back this asset to R. The market value of this asset on the date of sale was Rs.4,00,000; in this case, t
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R had been using an asset for is business and its W.D.V. as on 1.4.2019 was Rs.3,50,000 he sold this asset to G for Rs.5,00,000 and G leased back this asset to R. The market value of this asset on the date of sale was Rs.4,00,000; in this case, t

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Isha Tharwani answered.
9 months ago
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This appears to be a Sale and Lease Back Transaction. Now, the accounting as per AS-19 and IND AS-116 is different. So, I’m assuming you are looking for accounting as per AS-19, which is as follows:

General Rule:

If sale and leaseback transaction results in Operating Lease: Any excess or deficiency over the carrying amount should be recorded immediately in the books of account. This means, any gain or loss arising shall be transferred to the P/L account immediately, as follows:

  • If the sale price is above the fair value, the excess over fair value should be deferred and amortized over the period of the remaining useful life of the asset.
  • If the sale price is below the fair value, any loss shall be compensated by future lease payments at below market price, it should be deferred and amortized in lease payments proportion over the remaining useful life of the asset.

If sale and leaseback transaction results in Financing Lease: Any excess of deficiency over the carrying amount should be deferred and amortized over the lease term in proportion to the depreciation of leased assets.

In the given case,
Sale Value = Rs. 5,00,000
Fair Value = Rs. 4,00,000
WDV (Carrying Amount) = Rs. 3,50,000

So, the entry would be:

At the date of transaction:
Bank account……….Dr. (Sale value)5,00,000
To asset account (Carrying amount)3,50,000
To P/L account (Difference between the Carrying amount and Fair Value)50,000
To Deferred Gain (Difference between Sale Value and Fair Value)1,00,000
(Being asset given on sale and leaseback)
At year-end:
Deferred Gain……………..Dr.
To P/L account (over remaining useful life of the asset)
(Being deferred gain transferred to income)
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