Discuss the implication of the transactions and state the journal entries on January 1, 2020
On January 1, 2020, Tom Co (A seller-lessee) sells a building to MacCo (an unrelated buyer-lessor) for cash of $ 2,000,000. The fair value of the building at that time is $ 1,800,000; the carrying amount immediately before the transaction is $ 1,000,000. At the same time, TomCo enters into a contract with MacCo for the right to use the building for 18 years, with annual payments of $ 120,000 payable at the end of each year. The interest rate implicit in the lease is 4.5%, which results in a present value of the annual payments of $ 1,459,200. The transfer of the asset to MacCo has been assessed as meeting the definition of a sale under IFRS 16 (Leases).
Task:
Discuss the implication of the transactions and state the
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