Reference no: EM133141711

Questions -

Q1. XYZ Electronics is a financing business, leasing equipment to various entities. It acquired an equipment for a cost of P2,300,000. It immediately leased the equipment to ABC & Co. on January 1, 2020. Lease term is 6 years, and after the end of the lease term, asset will revert back to XYZ, the lessor. Annual lease payments are made at the start of each year, starting January 1, 2020. Guaranteed residual value of the equipment is P200,000. Implicit rate of the lease is 12%.

Below PV factors are provided in relation to the implicit rate:

PV of annuity in advance at 12% for 6 periods: 4.60

PV of 1 at 12% for 6 periods: 0.51

How much is the annual rental?

Q2. Under a sales-type lease, ABC Company leased equipment to XYZ Company on January 1, 2020 for a lease term of 8 yrs. Fixed payments under the lease are P500,000 are due in advance every January 1 of each year, starting January 1, 2020. Selling price of the equipment is P2,900,000, and its carrying amount is P2,000,000. The present value factor of the lease payments at an implicit rate of 12% is 5.56, using annuity in advance for eight periods.

How much is the dealer's profit on commencement date?

Q3. On January 1, 2020, ABC & Co. leased a computer from XYZ Inc. under a five-year lease contract. ABC opted for a PFRS 16 operating lease model since the contract involves a low value asset. Total rent payments for the whole lease term (60 months) are as follow:

First 9 months: 200,000 per month

Next 18 months: 100,000 per month

Next 12 months: 80,000 per month

Next 14 months: 50,000 per month

Remaining 7 months: 70,000 per month

How much is the total rent expense to be recognized by ABC for the year 2020?