Where a Sale and Leaseback Arrangement Involves the Benefits and Risks

question 50

Multiple Choice

Where a sale and leaseback arrangement involves the benefits and risks of ownership being maintained by the lessee:

• A) the lease back is classified as a finance lease.
• B) the owner has effectively refinanced the asset.
• C) any profit on the sale should be deferred in the statement of financial position and amortised.
• D) All of the given answers are correct.

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Definitions:

Equity Method

An accounting technique used to assess the profits earned by a company through its investment in another company, recognizing income or loss in proportion to its ownership share.

Consolidated Current Liabilities

The combined total of all short-term financial obligations and debts of a parent company and its subsidiaries, due within one year.

Excess Consideration

The amount paid by an acquiring company over and above the fair value of the net identifiable assets of the acquired company, often recorded as goodwill.

Underlying Book Value

The net asset value of a company calculated by total assets minus intangible assets (patents, goodwill) and liabilities.