On January 1, Year 1, Zulu Co. sells and immediately leases back a building from X-Ray Inc. The building has a net book value of $30,000,000 ($80,000,000 cost – $50,000,000 accumulated depreciation) and a fair value of $50,000,000. The selling price is equal to the fair value. The remaining useful life is 13 years, the lease term is 10 years, and the estimated residual value of the building at the end of the lease term is $10,000,000. This value is not guaranteed. The stipulated fixed payment of $5,297,000 per year, first due on
On January 1, Year 1, Zulu Co. sells and immediately leases back a building from X-Ray
Inc. The building has a net book value of $30,000,000 ($80,000,000 cost – $50,000,000
accumulated
the fair value. The remaining useful life is 13 years, the lease term is 10 years, and the
estimated residual value of the building at the end of the lease term is $10,000,000. This
value is not guaranteed. The stipulated fixed payment of $5,297,000 per year, first due on
December 31, Year 1, represents market rents. The rate implied in the lease is 3.9%,
which is the market interest rate for the risk level associated with the lease, and this rate
is known by the seller-lessee.
At the end of the lease term, X-Ray Inc., the buyer-lessor, has the option of requiring
Zulu to repurchase the building for $10,000,000.
Required:
Prepare all
lessor (X-ray Inc.) pertaining to the sales-leaseback agreement assuming both follow
IFRS
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