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Question 2b

This question relates to IAS 17 - Leases, which is not valid anymore...

Delta is an entity which prepares financial statements to 31 March each year. The financial statements for the year ended 31 March 2015 are to be authorised for issue on 30 June 2015. The following events are relevant to these financial statements:

(b) On 1 April 2014, Delta sold a property for $48 million to raise cash to expand its business. The carrying value of the property on 1 April 2014 was $50 million and its fair value was $55 million. The estimated future useful life of the property on 1 April 2014 was 40 years. On 1 April 2014, Delta began to lease this property on a 10 year lease. The annual lease rentals for the first five years of the lease were set at $1 million. For the final five years of the lease, the rentals were set at $1·5 million. Both of these rental amounts were below the market rental for a property of this nature. (7 marks)

Required:
Explain and show how the three events should be reported in the financial statements of Delta for the year ended 31 March 2015.

Note: The mark allocation is shown against each of the three events above.