Sales and Lease back - flow through financial statements
Hi guys
Got an accounting question as I am trying to get my head around sales-lease accounting mechanics and the flow through 3FS:
Assuming:
- FV of $20m
- 10 years lease
- Lease interest 5%
- Lease payment / year 1.8m
- BV 15m
- D&A assuming 0.5m
- PV lease liability @ 5% (via NPV formula) = 13.9m = lease liability
First question, I see two different approaches calculating RoU assets i) assuming same amount as lease liability (13.9m), or ii) calculating as PV/FV x BV ($10.4m). From a practical perspective, which methodology be used?
Instantly:
IS
- Gain on sales (20-15m) = 5m -> for now I assume RoU = lease liability
- Tax = assuming 0
- NI = 5.0m
CF
- NI = 5.0m
- Gain on sales= -5m
- Cash inflow =20m
- C&c equiv. = 20m
BS
- Cash = 20m
- PPE = (15m)
- RoU = 13.9m
- Total asset= 18.9m
///
- Lease = 13.9m
- NI= 5.0m
- Total lease = 18.9m
Year end
IS
- Interest = -0.7m (based on 5%)
- D&A = -0.5m
- NI = -1.2m
CF
- NI = -1.2m
- D&A = +0.5m
- Lease = -1.8m
- C&c equiv = -2.5m
BS
- Cash = -2.5m
- RoU = 13.4 (13.9 – 0.5m D&A)
- Total asset= 10.9m
///
- Lease = 12.1 (- 1.8m lease principal)
- NI= -1.2m
- Total lease = 10.9m
Many thanks monkeys!
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