The annual lease rental cost that Pedro must pay to Juan is PhP 27,500.

(The calculation follows)

NORMAL GROSS HARVEST

Sacks of Palay per Harvest

Harvests per Year
Sacks of Palay per year
Price per sack of Palay
Normal Gross Harvest

Year 1
Year 2
Year 3
50 x 5 = 250
50 x 5 = 250
2
2
250 x 2 = 500
250 x 2 = 500
300
300
500 x 300 = 150000
500 x 300 = 150000

Total
50 x 5 = 250
2
250 x 2 = 500
300
500 x 300 = 150000

750 sacks
2 harvests
1500 sacks
PhP 300
PhP 450,000

Total
2000 x 5 = 10000
2000 x 5 = 10000
2000 x 5 = 10000
2000 x 5 = 10000
40000

PhP 30,000
PhP 30,000
PhP 30,000
PhP 30,000
PhP 120,000

APPLICABLE PRODUCTION COST

Harvesting
Threshing
Seeds
Hauling
TOTAL

Year 1
2000 x 5 = 10000
2000 x 5 = 10000
2000 x 5 = 10000
2000 x 5 = 10000
40000

Year 2

Year 3
2000 x 5 = 10000
2000 x 5 = 10000
2000 x 5 = 10000
2000 x 5 = 10000
40000

Note: According to Sec. 2.9 of AO 06-2003, the allowable list of costs subtracted from the computed gross normal harvests are
costs utilized for seeds, and the cost of harvesting, threshing, loading, hauling and processing. In line with this, the given costs for
fertilizers and insecticides were not included in the deductions.

COMPUTATION OF LEASE RENTAL

Total Normal Gross Harvest

Less: Total Amount of Production Cost
Total Net Normal Harvest

PhP 450,000
PhP 120,000
PhP 330,000

Average Net Harvest

Lease Rental

PhP 110,000
PhP 27,500 / year

(Total Net Normal Harvest / 3)

(25% of Average Net Harvest)