Where a Sale and Leaseback Results in the Creation of an Operating

question 35

Multiple Choice

Where a sale and leaseback results in the creation of an operating lease and the sales price varies from the fair value of the asset,the lessee:

• A) either immediately recognises a profit or loss, or defers and amortises the profit or loss, depending upon the carrying amount of the asset (when sold) and whether any loss is compensated for by future lease payments.
• B) immediately recognises a profit or loss.
• C) defers and amortises the profit or loss.
• D) either immediately recognises a profit or loss, or defers and amortises the profit or loss, depending upon the length of the lease term.

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Definitions:

Machine-Hours

A measurement of the amount of time machines are used in production during a specific period.

Batches

Batches refer to a specific quantity of material or products processed or produced at one time in a manufacturing or production process.

Activity Rates

Ratios used to allocate costs to products or services based on the amount of activity consumed by each.

Activity-Based Costing

A pricing technique that allocates expenses to goods or services according to the tasks and materials involved in their creation.