On January 1, 2020, Sekita, Inc. entered into a 10-year lease for 1,800 square meters of office space with Masahiro Leasing Corporation (MLC). The annual lease payments are P2,200,000 payable at the end of each year. The interest rate implicit in the lease cannot be easily determined. Sekita’s incremental borrowing rate at the commencement date is 5.55 percent per annum.

Ownership of the property remains with MLC at the expiration of the lease. The leased office space has an estimated economic life of 15 years. The company presents its right-of-use assets separately in the statement of financial position.

Certain improvements were introduced to the office space in the amount of P3,500,000. Work-related to these improvements was completed on January 7, 2020. It was assessed that the estimated useful life for such improvements is 15 years.

The company observes the following rule in depreciating its fixed assets – depreciation will begin on the month of addition if it is recorded within the first half of the month, otherwise, depreciation starts on the following month. The company uses the straight-line method in depreciating its property and equipment and right-of-use assets.

Note: Round off present value factors to four decimal places (X.XXXX)

Based on the information above, answer the following:

1. How much is the total expense related to the leased office space for the year ended December 31, 2020?
2. What is the non-current portion of the lease liability as at December 31, 2021?

Answer rating: 100% (QA)

Calculation of value of ROU asset Lease liability on January 1st 2020 At initial recognition of ... View the full answer