question archive On January, 2019, Diana Corporation signed a 5-year non-cancelable lease for a machine with Calpol Company
On January, 2019, Diana Corporation signed a 5-year non-cancelable lease for a machine with Calpol Company
Subject:AccountingPrice:3.87 Bought7
On January, 2019, Diana Corporation signed a 5-year non-cancelable lease for a machine with Calpol Company. The term of the lease called for Diana to make annual payments of P86,680 at the beginning of each year starting January 1, 2019. The machine has an estimated useful life of 6 years and a P50,000 unguaranteed residual value at the end of the five-year lease term. The machine reverts to the lessor at the end of the five-year lease term. Diana uses the straight-line method of depreciation for all of its plant assets. The rate implicit in the contract, which is known to Diana is 10%. The fair value of the machine on January 1,2019 is P392,490. Diana incurred directly attributable cost of P10,000 to install the machine. Diana has a suitable fpr use at the end of the lease term. Estimated cost of restoration is P20,000. (Use a discount rate of 10% to measure the provision)
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Answer:
Calculation of Lease Liability
Year Lease Rental Discount Rate @10% (1/1.1) Amount (Lease Rental*Disc Rate)
0 P86,680 1 P86,680
1 P86,680 0.909 P78,792
2 P86,680 0.826 P71,598
3 P86,680 0.751 P65,097
4 P86,680 0.683 P59,203
P3,61,370
Calculation Of Right Of use Assets (Machinery)
Lease Liability P3,61,370
Installation P10,000
Restoration Cost P20,000
Total P3,91,370
Finance Charge
Year Opening Balance Lease Payments Interest @10% Closing Balance
1 P3,61,370 P86,680 P27469 P302159
2 P3,02,159 P86,680 P21548 P2,37,027
3 P2,37,027 P86,680 P15035 P165382
4 P1,65,382 P86,680 P7870 P86572
5 P86572 P86,680 (Appx.) Bf 0
Calculation Of ROU Assets
Year Op Bal Depreciation Closing Balance
1 391370 65,228 326142
2 326142 65,228 260914
3 260914 65,228 195686
4 195686 65,228 130458
5 130458 65,228 65230
6 65230 65,228 0
