Advanced Financial Accounting

Question 1: Accounting for Lease

Owing to low liquidity, Lisa Ltd decides on 1 July 2015 to sell its land and buildings to Anderson Ltd. The carrying values of the land and buildings in the books of Lisa Ltd, at 1 July 2015, are:

Land at cost                                $1800000

Buildings, at cost                         $1750000

Accumulated depreciation              $350000

The land and buildings are sold for $4334 700 (their fair value), with the amount being allocated equally as follows:

Land                                           $2167350

Buildings                                     $2167350

Immediately following the sale, Lisa Ltd decides to lease back the land and buildings from Anderson Ltd. The term of the lease is 20 years. The implicit interest rate in the lease is 12 per cent. It is expected that the buildings will be demolished at the end of the lease term. The lease is non-cancellable, returns the land and buildings to Anderson Ltd at the end of the lease, and requires the following lease payments:

Payment on inception of the lease on 1 July 2015               $600000

Payment on 30 June each year starting 30 June 2016         $500000

There is no residual payment required

REQUIRED

a) Provide the entries for the sale and leaseback in the books of Lisa Ltd as at 1 July 2015.

b) Provide the entries for the purchase and lease in the books of Anderson ltd as at 1 July 2015

c) Provide the entries in the books of Lisa Ltd as at 30 June 2025.

d) Provide the entries in the books of Anderson Ltd as at 30 June 2025.