Question 1

**Section A**

AeroFreight sold a cargo aircraft to a leasing company for its fair value of $40 million. The carrying amount prior to the sale was $30 million. AeroFreight immediately leased the aircraft back for 5 years. The present value of the lease payments is $24 million. The transfer qualifies as a sale under IFRS 15.

What is the gain on rights transferred to the buyer-lessor to be recognized in AeroFreight's profit or loss?

Accepted Answer

Calculate the total gain on sale. Then, determine the proportion of the asset's fair value that was transferred to the buyer (1 - (PV of lease / FV)). Multiply the total gain by this proportion.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Recognizing the full $10m gain, which was the old IAS 17 treatment for operating leases.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 4

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