IFRS 16 PROBLEMS

FIRST PROBLEM

Vidal Company entered into a lease contract on January 1, 2023 with the following terms:

Annual lease payments payable in advance: P1,000,000

Purchase option price: 700,000

Lease Term: 4 years

Useful life of underlying asset: 6 years

Residual value after useful life: P350,000

Incremental borrowing rate: 5%

It is reasonably certain that the company will exercise the option. However, on January 1, 2024 after making the lease payment for that year, it was reassessed that the purchase option will not be exercised anymore incremental borrowing rate as of that date is 7%.

Requirement: Prepare the amortization schedule on January 1, 2025.

SECOND PROBLEM:

At the beginning of 2023, the company entered into a lease with the following information:

Annual lease payments payable in advance P1,500,000

Purchase option price 900,000

Lease term 5 years

Useful life of the underlying asset: 8 years

Residual value after useful life: P500,000

Incremental borrowing rate: 8%

As of the commencement date, the company is not reasonably certain to exercise the purchase option. However, on January 1, 2025, the company reassessed that it is now reasonably certain that it will exercise the purchase option. incremental borrowing rate on that date of reassessment is 10%.

Requirement: Prepare the amortization schedule on January 1, 2025.