On January 1, 2017, DEF Corp. leased an equipment for 3 years at an annual rental of P500,000 payable every January 1 starting at inception. The equipment had an estimated useful life of 5 years with the asset ownership to be transferred to the lessee at lease expiration. The lessee paid lease bonus amounting to P300,000 and direct lease expense which included installation and commissioning costs amounting to P200,000. The lessor will however reimburse DEF Corp. 40% of the direct lease expense as a lease incentive. DEF Corp. further estimated that it will incur P600,000 in the future as cost to dismantle and decommission the said equipment upon retirement. The implicit lease rate on the lease known to both parties at the lease inception which is also deemed relevant in the determination of the present value of any future retirement obligations is at 8%. The asset had an estimated salvage value of P400,000 after 3 years and P200,000 after 5 years. Requirements:
1. Initial cost of the Right of Use Asset
2. Interest expense on the lease liability for 2017
3. Interest expense on the provision for asset retirement in 2017 4. Depreciation expense on the Right of Use Asset in 2017 (Straight Line Method)

Answer rating: 100% (QA)

1 2366000 2 96480 3 48000 4 393200 1 PV of rentals ... View the full answer