Reference no: EM133148229
Question 1 - On December 31, 2021, an explosion happened at Nucleo, Inc. electric powerplant that resulted to massive damages to surrounding buildings. Despite the absence of claims made against Nucleo as of March 31, 2022 (date of issuance of the financial statements), the management and the legal department have concluded that it is reasonably possible that the entity will be obliged to pay for damages, with a reasonable estimate of P2,500,000.
Nucleo's P10 million comprehensive public liability policy has a P500,000 deductible clause. The explosion qualifies as an insurable event under the public liability policy. It is Nucleo's policy to offset the reimbursement with the loss arising from any damage incurred.
In Nucleo's December 31, 2021 financial statements to be issued on March 31, 2022, how should the event be reported?
a. As an accrued liability of P500,000
b. As a footnote disclosure indicating a possible loss of P2,500,000
c. As a footnote disclosure indicating the possible loss of P500,000
d. As an accrued liability of P2,500,000
e. No accrual of liability nor any footnote disclosure
Question 2 - 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?
Question 3 - 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?