Reference no: EM132946843

Questions -

Q1) On January 1, 2021, DDS Company sold a piece of machinery to Troll Company for P1,900,000. Because of the entity's commitments to its customers to provide their needs for the next three years, DDS Company simultaneously leased back the machinery. The transfer of the asset to the buyer qualifies to be accounted for as a sale under IFRS 15. Information relating to this transaction follows:

Fair value of machinery- P2,200,000

Carrying amount of machinery- P1,700,000

Remaining useful life of the machinery- 8 years

Lease term- 3 years

Annual rent payable at the end of each year beginning, December 31, 2021- P500,000

Market rate of interest- 10%

The present value of an ordinary annuity of 1 at 10% for 3 periods is 2.4869.

The present value of an annuity due of 1 at 10% for 3 periods is 2.7355

How much is the interest expense for 2021 on the lease liability relating to the right retained in the sale-leaseback transaction?

Q2) On August 1, 2021, PAC Aviation leased two helicopters from Fast Aircraft for an initial period of 12 months with a provision for a continuation of a month-to-month basis. The lease is properly classified as an operating lease. Lease payments are to be made as follows:

1st two months- P15,000 per month

Next three months - P12,000 per month

Next three months - P10,000 per month

Last four months - P7,500 per month

After the first year, the rent continues at P6,000 per month.

What are the amounts reported in PAC Aviation's financial statements for the year 2021?