EXAMPLE 1

BOOKS OF SELLER-LESSEE (GERMAN COMPANY)

Date Account Title and Description PR DR
YEAR 2020
1/1/2020 Cash ₱1,200,000.00
Accumulated Depreciation ₱1,500,000.00
Equipment
Gain on sale and leaseback
to record the sale

1/1/2020 Rent Expense ₱300,000.00

Cash
to record the annual rental

EXAMPLE 2
INITIAL MEASUREMENT OF LEASE LIABILITY
Annual rental payable at the end of each year 450,000.00
Multiply by PV of ordinary annuity of 1 3.79
LEASE LIABILITY 1,705,950.00

COST OF RIGHT OF USE ASSET

Carrying amount of the asset 3,375,000.00
Sales price at fair value 3,750,000.00

COST OF RIGHT OF USE ASSET 1,535,355.00

GAIN ON RIGHT TRANSFERRED TO THE BUYER-LESSOR

Sales price at fair value 3,750,000.00
Less: Carrying amount of the asset - 3,375,000.00
Gain on sale 375,000.00

Fair value of the asset 3,750,000.00

Less: Initial Lease Liability - 1,705,950.00
Right transferred to buyer-lessor 2,044,050.00

GAIN ON RIGHT TRANSFERRED TO THE BUYER-LESSOR 204,405.00

BOOKS OF SELLER-LESSEE (YASMIN COMPANY)

Date Account Title and Description PR DR
YEAR 2020
1/1/2020 Cash ₱3,750,000.00
Right of Use Asset ₱1,535,355.00
Machinery
 Lease Liability
Gain on right transferred
to record the sale and leaseback

12/31/2020 Interest Expense ₱170,595.00

Lease Liability ₱279,405.00
Cash
to record the annual rental

12/31/2020 Depreciation ₱307,071.00

Accumulated Depreciation - Right of Use Asset
to record the annual depreciation

EXAMPLE 3
INITIAL MEASUREMENT OF LEASE LIABILITY
Annual rental payable at the end of each year 480,000.00
Multiply by PV of ordinary annuity of 1 3.31
Present Value of Lease Liability 1,589,760.00
Less: Additional financing equal to excess sales price - 600,000.00
Present Value of lease liability related to rentals 989,760.00

COST OF RIGHT OF USE ASSET

Carrying amount of the asset 2,700,000.00
Fair value of the asset 3,000,000.00

COST OF RIGHT OF USE ASSET 890,784.00

GAIN ON RIGHT TRANSFERRED TO THE BUYER-LESSOR

Fair value of machine 3,000,000.00
Less: Carrying amount of the asset - 2,700,000.00
Adjusted total gain 300,000.00

Fair value of the asset 3,000,000.00

Less: Initial Lease Liability, excludign excess sales price - 989,760.00
Right transferred to buyer-lessor 2,010,240.00

GAIN ON RIGHT TRANSFERRED TO THE BUYER-LESSOR 201,024.00

BOOKS OF SELLER-LESSEE (YASMIN COMPANY)

Date Account Title and Description PR DR
YEAR 2020
1/1/2020 Cash ₱3,600,000.00
Right of Use Asset ₱890,784.00
Machinery
Lease Liability
Gain on right transferred
 to record the sale and leaseback

12/31/2020 Interest Expense ₱127,180.80

Lease Liability ₱352,819.20
Cash
to record the annual rental

12/31/2020 Depreciation ₱222,696.00

Accumulated Depreciation
to record the annual depreciation

EXAMPLE 4
INITIAL MEASUREMENT OF LEASE LIABILITY
Annual rental payable at the end of each year 600,000.00
Multiply by PV of ordinary annuity of 1 2.67
Present Value of Lease Liability 1,603,800.00
Add: Excess fair value - prepayment of rental 1,200,000.00
Present Value of lease liability related to rentals 2,803,800.00

COST OF RIGHT OF USE ASSET

Carrying amount of the asset 4,200,000.00
Fair value of the asset 6,000,000.00

COST OF RIGHT OF USE ASSET 1,962,660.00

GAIN ON RIGHT TRANSFERRED TO THE BUYER-LESSOR

Fair value of machine 6,000,000.00
Less: Carrying amount of the asset - 4,200,000.00
Adjusted total gain 1,800,000.00

Fair value of the asset 6,000,000.00

Less: Initial Lease Liability, including excess fair value - 2,803,800.00
Right transferred to buyer-lessor 3,196,200.00

GAIN ON RIGHT TRANSFERRED TO THE BUYER-LESSOR 958,860.00

BOOKS OF SELLER-LESSEE (YASMIN COMPANY)

Date Account Title and Description PR DR
YEAR 2020
1/1/2020 Cash ₱4,800,000.00
Right of Use Asset ₱1,962,660.00
 Machinery
Lease Liability
Gain on right transferred
to record the sale and leaseback

12/31/2020 Interest Expense ₱96,228.00

Lease Liability ₱503,772.00
Cash
to record the annual rental

12/31/2020 Depreciation ₱654,220.00

Accumulated Depreciation
to record the annual depreciation
 BOOKS OF BUYER-LESSOR (STERLING COMPANY)
CR Date Account Title and Description PR DR
YEAR 2020
1/1/2020 Equipment ₱1,200,000.00
Cash
₱2,500,000.00 to record the purchase of equipment
₱200,000.00

1/1/2020 Cash ₱300,000.00

₱300,000.00 Rent Income
to record the annual rental income

12/31/2020 Depreciation ₱240,000.00

Accumulated Depreciation
to record the annual depreciation

BOOKS OF BUYER-LESSOR
CR Date Account Title and Description PR DR
YEAR 2020
1/1/2020 Machinery ₱3,750,000.00
Cash
₱3,375,000.00 to record the purchase of machinery
₱1,705,950.00
₱204,405.00

1/1/2020 Cash ₱450,000.00

Rent Income
₱450,000.00 to record the annual rental income

12/31/2020 Depreciation ₱375,000.00

₱307,071.00 Accumulated Depreciation - Machinery
to record the annual depreciation

BOOKS OF BUYER-LESSOR
CR Date Account Title and Description PR DR
YEAR 2020
1/1/2020 Machinery ₱3,000,000.00
Financial Asset ₱600,000.00
₱2,700,000.00 Cash
₱1,589,760.00 to record the purchase of machinery
₱201,024.00
 1/1/2020 Cash ₱298,840.58
Rent Income
₱480,000.00 to record the annual rental lease

1/1/2020 Cash ₱181,159.42

₱222,696.00 Financial Asset
Interest Income
to record the annual rental related to financing

12/31/2020 Depreciation ₱300,000.00

Accumulated Depreciation
to record the annual depreciation

BOOKS OF BUYER-LESSOR
CR Date Account Title and Description PR DR
YEAR 2020
1/1/2020 Machinery ₱4,800,000.00
Cash
₱4,200,000.00 to record the purchase of machinery
₱1,603,800.00
₱958,860.00

1/1/2020 Cash ₱600,000.00

Rent Income
₱600,000.00 to record the annual rental

12/31/2020 Depreciation ₱480,000.00

₱654,220.00 Accumulated Depreciation
to record the annual depreciation
 CR

₱1,200,000.00

₱300,000.00

₱240,000.00

10%
CR Date Payment Interest Principal
1/1/2020
12/31/2020 450,000.00 170,595.00 279,405.00
₱3,750,000.00 12/31/2021 450,000.00 142,654.50 307,345.50
12/31/2022 450,000.00 111,919.95 338,080.05
 12/31/2023 450,000.00 78,111.95 371,888.06
12/31/2024 450,000.00 40,768.61 409,231.40

₱450,000.00

₱375,000.00

8%
CR Date Payment Interest Principal
1/1/2020
12/31/2020 480,000.00 127,180.80 352,819.20
12/31/2021 480,000.00 98,955.26 381,044.74
₱3,600,000.00 12/31/2022 480,000.00 68,471.69 411,528.31
12/31/2023 480,000.00 35,632.25 444,367.75
 PRESENT VALUE FRACTION ALLOCATION
Rental income ₱989,760.00 0.62 298,840.58
₱298,840.58 Financial asset ₱600,000.00 0.38 181,159.42
TOTAL ₱1,589,760.00 ₱480,000.00

8%
₱133,159.42 Date Payment Interest Principal
₱48,000.00 1/1/2020
12/31/2020 181,159.42 48,000.00 133,159.42
12/31/2021 181,159.42 37,347.25 143,812.17
12/31/2022 181,159.42 25,842.27 155,317.15
₱300,000.00 12/31/2023 181,159.42 13,448.16 167,711.26

6%
CR Date Payment Interest Principal
1/1/2020
12/31/2020 600,000.00 96,228.00 503,772.00
₱4,800,000.00 12/31/2021 600,000.00 66,001.68 533,998.32
 12/31/2022 600,000.00 33,970.32 566,029.68

₱600,000.00

₱480,000.00
Present Value
₱1,705,950.00
₱1,426,545.00
1,119,199.50
781,119.45
 409,231.40
-

Present Value
₱1,589,760.00
1,236,940.80
855,896.06
444,367.75
-
Present Value
₱600,000.00
466,840.58
323,028.41
167,711.26
-

Present Value
₱1,603,800.00
1,100,028.00
566,029.68
-