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Instructor: Score:
ASSIGNMENT – LEASES (PFRS 16)
LESSOR ACCOUNTING – SALES TYPE LEASE
JGS Company adopted the policy of leasing as the primary method of selling its products. The entity’s main
product is a small helicopter that is very popular among politicians and entity managers. JGS Company
constructed such a helicopter for MFT Company at a cost of P9,000,000.
Financing the construction was at a 14% rate. The terms of the lease provided for annual advance
payments of P2,500,000 to be paid over 10 years with the ownership transferring to the lessee at the end
of the lease period. It is estimated that the helicopter will have an economic life of 20 years and a residual
value of P1,600,000 at that date.
The lease payments began on January 1, 2024. The present value of an ordinary annuity due of 1 at 14%
for 10 periods is 5.95.
Required:
1. What is the gross profit on sale that should be recognized by JGS Company?
2. What is the unearned interest income on January 1, 2024?
3. What is the interest income for 2024?
4. What is the cost of the helicopter that should be recognized by MFT?
5. What is the depreciation expense that should be recognized by MFT in 2024?
LESSEE ACCOUNTING – FINANCE LEASE
On December 31, 2024, Lessee Co. signed a four-year noncancelable lease for the right of use asset of a
new machine, requiring P150,000 payments beginning December 31, 2024. The machine has a useful life
of 10 years, with no salvage value. The rate implicit on the lease is 12%.
Lessee Co. has a bargain purchase option amounting to P30,000 and it is reasonably certain that the
company will exercise this option.
Required: Compute for the following: (Round off present value factors to four decimal places)
1. The amount to be capitalized as right-of-use-asset on December 31, 2024
2. Depreciation expense on the lease in 2025
3. The amount to be shown in the current liability section of the statement of financial position on
December 31, 2025
4. The amount to be shown in the noncurrent liability section of the statement of financial position on
December 31, 2025
SALES AND LEASEBACK
At the beginning of current year, Gold Co. sold an equipment with remaining useful life of 10 years and
immediately leased it back for 5 years.
Sales price at above fair value 5,700,000
Fair value of equipment 5,000,000
Carrying amount of equipment 4,500,000
Annual rental payable at the end of each year 500,000
Implicit interest rate 10%
Required:
1. What amount should be recognized as initial lease liability?
2. What amount should be recognized as cost of right of use asset?
3. What amount should be recognized as gain on right transferred to the buyer-lessor?
4. What amount should be recognized as annual rental income of the buyer-lessor?
OPERATING LEASE
On January 1, 2024, ABC Co. entered into a 4-year nonrenewable operating lease with a lessee,
commencing on that date, for office space. The office space has a useful life of 50 years. The lease specifies
a monthly rent of P60,000.
Questions: Assume the following independent cases:
Case No 1: Assume that no other data are given
1. How much is the total rent income in 2024?
Case No. 2: Assume instead that ABC Co. made the following payments on January 1, 2024:
Bonus to obtain lease 400,000
One year's rent 720,000
Last month's rent 60,000
2. How much is the total rent income in 2024?
Case No. 3: Assume instead that the lessor grants free rent of 7 months.
3. How much is the total rent income in 2024?
4. How much is the rent receivable (or unearned rent income) on December 31, 2025?
Case No. 4: Assume instead the rent payment will be as follows:
Rent per month for the 1st two years 50,000
Rent per month for the last three years 60,000
5. How much is the total rent income in 2024?
6. How much is the rent receivable (or unearned rent income) on December 31, 2025?
Case No. 5: Assume instead that the lessor paid the following:
Initial direct cost 120,000
Insurance and property tax expense on leased asset 60,000
Depreciation of the leased asset 60,000
7. How much is the net income to be recognized as a result of this lease in 2024?
Case No. 6: Assume that in addition to the monthly rent, the lessor and lessee agreed on the following
additional rent:
Rate Net sales over Up to
8% 1,000,000 3,000,000
5% 3,000,000
The total net sales for 2024 were P6,000,000.
8. How much is the total rent income in 2024?
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