What is the cost of right of use of asset?
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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- Question 5 Telephone Limited signed a contract with Machinery Leasing Company at 1st January 2020 to lease a machine. The agreement consists in 10 equal annual payments of $300,000 at the beginning of each year with an interest rate of 15%. The yearly rental payment includes $30,000 of executory costs related to insurance on the machine. The executory costs of $30,000 are paid to the lessor each year. There is an option to purchase the machine at the end of the lease term for $50,000. The machine has an estimated useful life of 14 years and a guaranteed residual value of $20,000. Both companies adopt straight-line depreciation method for all items of PPE. Consider a PVIF (n=10, i=15%) of 0.2472 and PVIFA (n=10, i=15%) of 5.0188. The balance day for Telephone Limited and Machinery Leasing Company is 31 of December. Required (Round all numbers to the nearest dollar) a) Discuss the nature of this lease to Telephone Limited. b) Discuss the nature of this lease to Machinery Leasing…On January 1, 2020, A Company sold a building to B Company with a carrying amount of P4,200,000 for P5,500,000 and immediately leased it back. The building had a fair value of P4,700,000 at the date of sale, and had a remaining useful life of 10 years. Additional information on the lease is as follows: Lease term 5 years P500,000 Annuity made in advance 10% Implicit rate USE PV FACTORS ROUNDED TO 4 DECIMALS. ROUND FINAL ANSWERS TO NEAREST PESO. Determine total rent income recognized by B Company in 2020.At the beginning of current year, Arianne Company sold a Próblem 15-12 (IFRS) machine and immediately leased it back. 5,000,000 6,000,000 500,000 Sale price at fair value Carrying amount of machine Annual rental payable at the end of each year Lease term Remaining life of machine Implicit interest rate PV of an ordinary annuity of 1 at 6% for 5 perioda 5 years 20 years 6% 4.21 1. What is the cost of right of use asset? a. 2,105,000 b. 2,526,000 c. 2,895,000 d. 1,500,000 2. What is the loss on right transferred to the buyer-lessor? a. 579,000 b. 505,200 c. 500,000 d. 3. What is the lease liability at year-end? a. 2,177,560 b. 1,605,000 с. 1,731,300 d. 2,105,000 4. What is the net annual rental income of the buyer-lessor? a. 373,700 b. 200,000 с. 500,000 d. 250,000 17 I 10 Page +
- 6. Entity X sells a building to Entity Y and simultaneously leases Sale and leaseback 6. Entity X sells a building to Entity Y and simultaneously it back. Relevant information follows: P2,000,00 Cash selling price of building Fair,value of building Carrying amount of building Annual rent payable at the end of each year 1,800,00 1,000,00 120,000 18 years Lease term 4.5% Implicit interest rate (readily determinable to Entity X) The terms and conditions of the transaction are such that the transfer of the building qualifies as a sale under PFRS 15. Requirements: Prepare the journal entries in the books of Entity X (seller-lessee) and Entity Y (buyer-lessor) on lease commencement. (Adapted - IFRS 16. IE11)6. Lessee Company leased a machine on January 1, 2019 with the following pertinent information:Implicit interest rate - 10%Incremental interest rate - 12%Useful life of the machine - 12 yearsLease term - 10 yearsFixed rental payment at the end of each year - 900,000The Lessee Company has the option to purchase the machine upon the lease expiration on January 1, 2029 by paying P400,000. The lessee is reasonably certain to exercise the purchase option at the commencement date of the lease. The estimated residual value of the machine at the end of the 12-year life is P500,000. The carrying value of the right-of-use asset at the end of 2019 is?25 Vanderbilt Company is a dealer in machinery. On January 1, 2010 machinery was leased to another enterprise with the following provisions: Annual rental payable at the end of each year, 3,000,000Lease term and useful life of machinery, 5 yearsCost of machinery, 8,000,000Residual value-unguaranteed, 1,000,000Implicit interest rate, 12%PV of an ordinary annuity of 1 for 5 periods at 12% 3.60PV of 1 for 5 periods at 12% 0.57 At the end of the lease term on December 31, 2010, the machinery will revert to Vanderbilt. The perpetual inventory system is used. Vanderbilt incurred initial direct cost of P300,000 in finalizing the lease agreement.What is the total financial revenue from the lease? a. 4,630,000 b. 4,200,000 c. 5,200,000 d. 3,630,000
- Homework 1 of Chapter 15. Q1. Python Company leased equipment from Hope Leasing on January 1, 2020. Hope recently purchased the equipment at a cost of $222,664. Other information: Lease term Annual payments Life of asset Fair value of asset 3 years $80,000 on January 1 each year 3 уears $222,664 8% 8% Implicit interest rate Incremental rate There is no expected residual value. Required: 1) Show how Hope determined the $80,000 annual lease payments. Fair Value: 3 aaa, o loH - Present Valuee 2) Prepare appropriate journal entries for Hope for 2020 and 2021. Round your answers to the nearest whole dollar amounts. Prepare an amortization schedule for Hope. Outstanding Balance (lease receivable) 222. tolo4 Effective Interest Revenue Decrease in Balance Date Cash Payments 1/1/2020 1/1/2020 12/31/2020 12/31/2021 80.000 80.000 $0.000 gross lease investmentAt the beginnig of current year, East Company leased a new machine from North Company with the following information: Annual rental payable at beginning of each lease year 4000,000Lease Term 10 yearsUseful life of machine 12 yearsImplicit interest rate 14% Present value of an annuity of 1 in advance for 10 periods at 14% 5.95Present value of 1 for 10 periods at 14% 0.27 East company had the option to purchase the machine upon the expirtation of the lease term by paying P500,000. The purchase option is reasoably certain to be exercised. What amount should East Company…PROBLEM 6: Leased asset was PURCHASED by the lessee Lazy Company leased an equipment with useful life of 6 years on January 1, 2020 for period of 5 years with fixed annual rental ofP600,000 which is to be paid at the end of each year. The lease contract provides that the lessee has guaranteed a P100,000 residualvalue of the leased asset. The implicit interest rate in the lease is 10%. Assuming that at December 31, 2022, Lazy Companypurchased the equipment for P1,300,000. REQUIRED: Prepare table of amortization and journal entries for the entire lease term.
- At the beginning of current year, an entity sold building with remaining useful life of 25 years and immediately leased it back for 5 years. Sale price at fair value 20,000,000 Carrying amount of building 24,000,000 Annual rental payable at the end of each year 1,000,000 Implicit interest rate 12% Present value of an ordinary annuity of 1 at 12% for 5 periods 3.60 What is the cost of right of use asset? What is annual depreciation of the right of use asset? What is the loss on right transferred? What amount of net rental income should be reported by the lessor?Problem 3 At the beginning of the current year, CBX Company sold a building with remaining life of 20 years and immediately leased it back for 5 years. Sales price at above fair value Fair value of building Carrying amount of building Annual rental payable at the end of each year Implicit interest rate Present value of an ordinary annuity of 1 at 12% for five periods 20,000,000 18,000,000 10,800,000 1,500,000 12% 12% 1. What amount should be reported as initial lease liability? 2. What amount should be recognized as cost of right of use asset? 3. What amount should be reported as gain on right transferred to the buyer-lessor? 4. What amount should be recognized as gross rental income of the buyer-lessor? 5. What amount should be recognized as depreciation of the building of the buyer-lessor?1. On January 1, 2023, Malone purchased a building with a $200,000 10 year zero interest note. The normal borrowing rate for Malone is 10%. (you will need to use TVM and an amortization table) A. Compute the present value and prepare an amortization table. B. Record the necessary journal entries at 1/1/23, 12/31/23 and 12/31/24 using the effective interest method. C. Show the financial statement presentation of the note on the I/S and B/S at 12/31/23 and 12/31/24. 2. On October 1, 2023, Malone borrowed $50,000 by issuing a 11 month, 9% note. Interest will be paid at maturity. (you do NOT need to use TVM or an amortization table) A. Record the journal entries at 10/1/23, 12/31/23 and maturity. B. Show the financial statement presentation of the note on the I/S and B/S at 12/31/23 and 12/31/24. 3. During 2023 Jones sells products that carry a three-year manufacturer’s warranty. Jones sold 2,000 units this year for $2,000 each. For this year’s sales, Jones estimates the warranty costs to…