Nhyiraba Limited lease a building worth R4 million to Quintin Limited under an operating lease for 10 years. During the period, Quintin Limited decided to buy the building at the end of the lease period of which no proper documentation and agreement were reached between the two companies. Identify how Nhyiraba Limited will recognize the building under IAS 40 and give reasons for your answer
Nhyiraba Limited lease a building worth R4 million to Quintin Limited under an operating
lease for 10 years. During the period, Quintin Limited decided to buy the building at the
end of the lease period of which no proper documentation and agreement were reached
between the two companies. Identify how Nhyiraba Limited will recognize the building
under IAS 40 and give reasons for your answer
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KK Limited owns a property that is used as its head office in Pretoria. On 1
st January 2020, its
carrying value was R20 million and its remaining useful life was 20 years. On 1st July 2020, the
business recognized cheaper premises found for use as the head office. It was therefore decided
to lease the property under an operating lease. The property was valued by a qualified
professional who assessed the property’s value as R21 million on 1st July and R21.6 million on
31st December 2020. Explain the accounting treatment of the property in the financial
statements for the year ended 31st December 2020. (Hint: Income statement and SOFP extract
including calculations).
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