CERTYNEX IFRS ACADEMY

The manufacturer Kelso produces industrial compressors, which it sells or leases. It provides a compressor, with a production cost of 60,000 and a normal selling price of 80,000, to a customer under a three-year lease classified (given in the case) as an operating lease. What treatment does Kelso apply at the commencement date?

It recognises revenue of 80,000 and cost of sales of 60,000, as for an outright sale.

It immediately recognises the 20,000 margin, then spreads the lease payments over three years.

It recognises no selling profit; the compressor stays in its assets, depreciated under its policy for similar assets, and lease payments are spread.

It recognises revenue equal to the present value of the lease payments and cost of sales equal to the cost of the compressor.