Problems 14-1 Multiple Choice

1. If the sale and leaseback transaction results in an operating lease and the sale price
is below fair value that is compensated by future rental at below market value, any
indicated loss on sale is

a. Recognized immediately in profit or loss.

b. Recognized in other comprehensive income.
c. Deferred and amortized in proportion to the lease payments over the period for
which the asset is expected to be used.
d. Not recognized.

2. If the sale and leaseback transaction results in an operating lease and the sale price
is above fair value, the excess of the sale price over fair value is

a. Deferred and amortized over the period for which the asset is expected to used.
b. Recognized immediately in profit or loss.
c. Recognized in other comprehensive income.
d. Not recognized.

3. For sale and leaseback transaction resulting in an operating lease if the fair value of
the asset at the time of sale and leaseback is below the carrying amount of the
asset, the differences is recognized

a. As loss immediately
b. As gain immediately
c. As deferred loss to be amortized over the lease term
d. As deferred gain to be amortized over the lease term

4. If the sale and leaseback transactions results in a finance lease, any excess of sale
proceeds over the carrying amount of the asset is

a. Deferred and amortized as income over the lease term.

b. Deferred and amortized as income over the life of the asset.
c. Recognized in profit or loss immediately.
d. Recognized in other comprehensive income.

5. Which of the following statements is true regarding sale and leaseback transaction?
a. Both profit and loss on sale followed by an operating lease are recognized
immediately if the transaction is established at fair value.
b. Profit from the sale should be amortized in proportion to the rental payments if
an operating lease results from the sale and leaseback transaction.

c. Any profit on sale and leaseback transaction resulting in an operating lease is

deferred and any loss is recognized immediately.
d. Profit from the sale should be deferred and amortized in proportion to the
amortization of the leased asset if the sale and leaseback transaction results in a
finance lease.