1. How much is the interest expense for 2021 on the lease liability relating to the right retained in the sale-leaseback transaction? (round off your final answer to the nearest peso value) 2. What is the amount recorded by Smith Company for the right-of-use asset on January 1, 2021? (round off your final answer to the nearest peso value) 3. How much is the lease liability recorded on January 1, 2021?
On January 1, 2021, Smith Company sold a piece of machinery to Gaby Company for P1,900,000. Because of the entity's commitments to its customers to provide their needs for the next three years, Smith Company simultaneously leased back the machinery. The transfer of the asset to the buyer qualifies to be accounted for as a sale under IFRS 15. Information relating to this transaction follows:
- Fair value of machinery - P2,200,000
- Carrying amount of machinery - P1, 700,000
- Remaining useful life of the machinery - 8 years
- Lease term - 3 years
- Annual rent payable at the end of each year beginning, December 31, 2021- P500,000
- Market rate of interest - 10%
- The present value of an ordinary annuity of 1 at 10% for 3 periods is 2.4869
- The present value of an annuity due of 1 at 10% for 3 periods is 2.7355
1. How much is the interest expense for 2021 on the lease liability relating to the right retained in the sale-leaseback transaction? (round off your final answer to the nearest peso value)
2. What is the amount recorded by Smith Company for the right-of-use asset on January 1, 2021? (round off your final answer to the nearest peso value)
3. How much is the lease liability recorded on January 1, 2021?
Step by step
Solved in 5 steps with 3 images
