On January 1, 2020, EF Corp. leased an equipment for 5 years at semi-annual rental of ₱325,000 payable every June 30 and December 31. The equipment had an estimated useful life of 7 years. EF Corp. has an option to purchase the equipment from the lessor by paying the lessor ₱200,000 at the lease expiration date. The lessee paid lease bonus amounting to ₱280,000 and direct lease expense which included installation and commissioning costs amounting to ₱125,000. The lessor will however reimburse EF Corp. 15% of the direct lease expense as a lease incentive. The annual implicit lease rate on the lease known to both parties at the lease inception was at 10% while the incremental borrowing rate of the EF Corp. was at 12%. The asset had an estimated salvage value of ₱100,000 after 5 years and ₱60,000 after 7 years. Requirements: (Use a PV FACTOR rounded off to 4 decimal places) 5. Initial cost of the Right of Use Asset 6. Interest expense for 2020
FINANCE LEASE
On January 1, 2020, EF Corp. leased an equipment for 5 years at semi-annual rental of ₱325,000 payable
every June 30 and December 31. The equipment had an estimated useful life of 7 years. EF Corp. has an option to
purchase the equipment from the lessor by paying the lessor ₱200,000 at the lease expiration date. The lessee
paid lease bonus amounting to ₱280,000 and direct lease expense which included installation and
commissioning costs amounting to ₱125,000. The lessor will however reimburse EF Corp. 15% of the direct lease
expense as a lease incentive.
The annual implicit lease rate on the lease known to both parties at the lease inception was at 10% while the
incremental borrowing rate of the EF Corp. was at 12%. The asset had an estimated salvage value of ₱100,000
after 5 years and ₱60,000 after 7 years.
Requirements: (Use a PV FACTOR rounded off to 4 decimal places)
5. Initial cost of the Right of Use Asset
6. Interest expense for 2020
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