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How much is the rent expense reported in DC Company profit

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Q1. DC Company grants Marvel Company first month rent-free under a 12-month lease for low-value items such as furniture, tablets, and laptops. The lease is effective April 1, 2021 and provides for a monthly rental of P12,000, payment of which will begin on May 1, 2021.

How much is the rent expense reported in DC Company's profit or loss for the year ended December 31, 2021?

Q2. On January 1, 2021, Citra Company sold a piece of machinery to Dolphin Company for P1,900,000. Because of the entity's commitments to its customers to provide their needs for the next three years, Citra 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%

PV of an ordinary annuity of 1 at 10% for 3 periods is 2.4869

PV of an annuity due of 1 at 10% for 3 periods is 2.7355

How much is the lease liability recorded on January 1, 2021?

Reference no: EM132946204

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