Reference no: EM133190088
Question - Q1. On January 1, 2022, Tiktok Company leased a heavy equipment to be used in its construction business. The following information relates to the lease:
Lease term -10 years
Useful life of the equipment - 12 years
Annual rental payable in advance every January 1 - P240,000
Implicit interest rate - 14%
Incremental borrowing rate - 12%
Tiktok has the option to purchase the leased asset by paying P400,000, which approximates the fair value of the equipment on the option exercise date. (Round off the PV factor to four decimal places)
What is the cost of the right-of-use asset?
Q2. Happy Company grants Incredible Company first month rent-free under a 12-month lease for low-value assets such as furniture, tablets, and laptops. The lease is effective August 1, 2021 and provides for a monthly rental of P12,000, payment of which will begin on September 1, 2021.
How much is the rent expense reported in Happy Company's profit or loss for the year ended December 31, 2021?
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