A Ltd. sold JCB having WDV of 20 lakhs to B Ltd. for 24 lakhs and the same JCB was leased back by B Ltd. to A Ltd. The lease is operating lease. In…

Following will be the treatment in the given cases: (i) When sale price of 24lakhs is equal to fair value, A Ltd. should immediately recognise the profit of 4lakhs (i.e. 24 - 20) in its books. (ii) When fair value is 20lakhs & sale price is 24lakhs then profit of 4lakhs is to be deferred and amortised over the lease period. (iii) When fair value is 22lakhs & sale price is 25lakhs, profit of 2lakhs (22 - 20) to be immediately recognised in its books and balance profit of 3lakhs (25-22) is to be amortised/deferred over lease period. (iv) When fair value of leased machinery is 25lakhs & sale price is 18lakhs, then loss of 2lakhs (20 – 18) to be immediately recognised by A Ltd. in its books provided loss is not compensated by future lease payment. (v) When fair value is 18lakhs & sale price is 19lakhs, then the loss of 2lakhs (20-18) to be immediately recognised by A Ltd. in its books and profit of 1lakhs (19-18) should be amortised/deferred over lease period.