APPLICATION:

Directions: Read each statement below carefully. Place a T on the space before each number if

You think a statement is TRUE. Place an F on the space if you think the statement is FALSE.

1. T PFRS 16 Leases, a lessee shall classify each of its leases into a finance lease or an operating
Lease.
2. T A. contract is (or. Contains) a lease if it conveys the right to control the use an identified
asset for A period of time in exchange for consideration.
3. F An underlying asset is not considered an identified asset for the purpose of applying the
Accounting requirements of PFRS 16 if the supplier’s substitution right is not substantive.
4. T The current view on accounting for leases by lessees is that all leases are ‘on-balance sheet’
items, With very minimal exceptions.
5. T In most leases, a lessee recognizes an asset and a liability at the commencement date.
6. F According to PFRS 16, lease payments include any amount to be paid for purchase options
that Are reasonably certain to be exercised and amounts that are expected to be paid under
residual Value guarantees.
7. T The lessee always uses its incremental borrowing rate in determining the present • value of
the Minimum lease payments.
8. T If a lease transfers ownership of the underlying asset to the lessee by the end of the lease
term, The underlying asset is depreciated over its useful life or the lease term whichever is short
Fact pattern
On January 1, 20x1 Lessee enters into a 4-year lease of an asset an annual rent of P10,000
payable at the
beginning of each year. The interest rate implicit in the lease is 10% while the lessee's
incremental
borrowing rate is 12%.
9. T The initial measurement of the right-of-use asset is determined as follows:P10, 000 x PV Of
an ordinary annuity of PI @, n=4.
10. F The initial measurement of the lease liability is determined as follows: P10, 000 x PV of an
annuity due of P1 @ 10% , n=4

Lease Liability

1.B

Fixed Payments 100,000

Multiply by: present value factor for an ordinary annuity 6.15

Present Value of lease payments 615,000

2. B

Fixed Payments 100,000

Multiply by: PV factor for 10 periods at 10% for an ordinary annuity 6.145

Present Value of lease payments 614,150

3.A

Fixed Payments (52,000 – 2,000) 50,000

Multiply by: present value of an ordinary annuity for 9 years at 9% 5.6

Present Value of lease payments 280,000

4. C

Fixed Payments 10,000

Multiply by: PV factor for an ordinary annuity 12% for 10 years 6.328

Total 63,280

Fixed Payments 10,000

Multiply by: PV 12% for 10 years .322

Total 3,220

Present Value of lease payments 66,550

5. A

Annual payment 13,000

PV of annuity due (at beginning of year) 4.240

PV of annual payments before first required payment 55,120

Less first payment (Jan. 1, 1990) (13,000)

PV of annual payments after first required payment 42,120

Add PV of guaranteed residual value (PV for 5 periods 0.650 x 10,000) 6,500

Capital lease liability after first required payment 48,620

6. A

The beginning lease liability balance 379,000

Interest Rate 10%

Interest Expense 37,900

7. B Interest expense (112,500 x .08) 9,000

Lease liability. 1,000

Cash 10,000

The ending lease liability is 111,500 (112,500 – 1,000 from entry).

8. B

Fixed Payments 10,000

Multiply by: PV for an ordinary annuity 10% for ten years is 6.1446

Present Value of lease payments 61,446

9. B

The initial lease obligation at 12/30 135,000

Annual lease Payment (20,000)

115,000

Interest Rate 10%

11,500

Principal Reduction

(20,000 – 11,500 = 8,500)

10. B

Depreciation expense 9,000

108,000/12years = 9,000