At the beginning of the year, Paso Co leased a building from a lessor with the following
Question:
At the beginning of the year, Paso Co leased a building from a lessor with the following pertinent information:
Annual rental payable at the end of each year - P1,000.000
Initial direct cost paid - P400.000
Lease incentive received - P100.000
Leasehold improvement - P200.000
Purchase option - P500.000
Lease term - 5 years
Useful life of building - 8 years
Implicit interest rate - 10%
PV of an ordinary annuity of 1 for 5 years at 10% - 3.79
PV of 1 for 5 periods at 10% - 0.62
REQUIRED (Assuming purchase option is reasonably certain to be exercised?
1. Cost of right of use asset?
2. Depreciation for the year?
3. Interest expense for the year?
4. Non-current lease liability at year-end?
Horngrens Financial and Managerial Accounting
ISBN: 978-0133866292
5th edition
Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura