question archive Adventist University of the PhilippinesACCT MISC On January, 2019, Diana Corporation signed a 5-year non-cancelable lease for a machine with Calpol Company
Adventist University of the PhilippinesACCT MISC On January, 2019, Diana Corporation signed a 5-year non-cancelable lease for a machine with Calpol Company
Subject:AccountingPrice:4.87 Bought7
Adventist University of the PhilippinesACCT MISC
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 suitable for 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)
REQUIRED:
a) At what amount should Diana record the leased asset at January 1, 2019?
Should I recognize the restoration cost at its present value?
B) What are the entries for transactions in Januray 1?
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Answer:
| Year Lease Rental Discount Rate | ||||
| Year | Amount | rate @10% | Discount Amount(Amount * DR) | |
| 0 | 86,680 | 1 | 86,680.00 | |
| 1 | 86,680 | 0.909 | 78,792.12 | |
| 2 | 86,680 | 0.826 | 71,597.68 | |
| 3 | 86,680 | 0.751 | 65,096.68 | |
| 4 | 86,680 | 0.683 | 59,202.44 | |
| 361,368.92 | ||||
| Amount Diana Should record the leased asset at January 1, 2019 | ||||
| Lease Cost | 361,368.92 | |||
| Installation | 10,000.00 | |||
| Restoration Cost | 20,000.00 | |||
| 391,368.92 | ||||
| Recognize restiration cost at present value | ||||
| Opening Balance Lease Payments | Year | opening Bal. | Annual Payment | Interest @10% | Closing Balance |
| 1 | 361,370.00 | 86,680 | 27,469.00 | 302,159.00 | |
| 2 | 302,159.00 | 86,680 | 21,548.00 | 237,027.00 | |
| 3 | 237,027.00 | 86,680 | 15,035.00 | 165,382.00 | |
| 4 | 165,382.00 | 86,680 | 7,870.00 | 86,572.00 | |
| 5 | 86,572.00 | 86,680 | (108.00) | ||
| Assets Recognition | Year | Opening Bal | Depreciation (straight-line method) | Closing Balance | |
| 1 | 391370 | 65,228 | 326,142 | ||
| 2 | 326,142 | 65,228 | 260,914 | ||
| 3 | 260,914 | 65,228 | 195,686 | ||
| 4 | 195,686 | 65,228 | 130,458 | ||
| 5 | 130,458 | 65,228 | 65,230 | ||
| 6 | 65,230 | 65,228 | 2 | ||
| Cal | |||||
| Depreciation (straight-line method) | 391,370/6 | ||||
| 65,228.00 |
