Reference no: EM132934808
Questions -
Q1) On January 1, 2019, Carbonara Inc. leased a machine by signing a four-year lease contract. Annual payments of P1,000,000 are payable at the beginning of each year starting January 1, 2019. Carbonara is given the bargain option to buy the machine for P250,000 at December 31, 2022. The asset's useful life is five years, at the end of which the asset's scrap value is expected to be P400,000. Carbonara uses the straight-line method to depreciate this asset. The lessor's implicit rate is 10%, which is known to Carbonara.
At what amount should the right-of-use asset be recorded on January 1, 2019?
A. P3,657,650
B. P2,657,650
C. P4,000,000
D. P4,170,750
Q2) On January 1, 2020, Millennial Corp entered into a 4-year lease of property with annual lease payments of P50,000, payable at the end of each year. The contract states that lease payments will increase after two years based on the increase in the Consumer Price Index (CPI) in the preceding 2 years. The rate implicit in the lease is not readily determinable. The implicit rate of the lease is 12% but Millennial Corp.'s incremental borrowing rate is 10%. Millennial uses straight-line depreciation with an estimated useful life of 5 years. In addition, the contract requires Millennial to make an additional payment of 5% of excess sales over P2,000,000. Millennial expects its annual sales in the next 4 years to exceed P2,000,000 by P100,000.
The CPIs are as follows:
January 1, 2020- 250
January 1, 2022- 350
What are the carrying amounts of right use assets on December 31, 2022?
A. P75,333
B. P46,714
C. P72,013
D. P46,417
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