CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

OPERATING LEASE AND LEASEBACK

1. On January 1, 2021, an entity purchased a new machine for P6,000,000 for the purpose of leasing it.
The machine had an estimated 10-year life. On April 1, 2021, the entity leased the machine to a
lessee for three years at a monthly rental of P400,000. The lessee paid the rental for one year of
P4,800,000 on April 1, 2021 and additionally paid P900,000 to the lessor as a lease bonus to obtain
the three-year lease. On April 1, 2021, the entity paid P300,000 to a broker as a finder fee. What is
the net rental income of the lessor for 2021?
a. 3,150,000
b. 4,350,000
c. 3,200,000
d. 4,400,000
2. On January 1, 2021, an entity leased an equipment to a lessee under a 3-year operating lease. Total
rent for the lease term is P3,600,000, payable P50,000 monthly for the first lease year, P75,000
monthly for the second lease year and P175,000 monthly for the third lease year. All payments were
made when due. On December 31, 2022, what amount should be reported as accrued rent receivable?
a. 2,100,000
b. 1,200,000
c. 900,000
d. 0

3. At the beginning of current year, an entity sold an equipment with remaining life of 10 years and
immediately leased it back for 4 years at the prevailing market rental.
Sale price at fair value 6,000,000
Carrying amount of equipment 4,500,000
Annual rental payable at the end of each year 800,000
Implicit interest rate 10%
Present value of an ordinary annuity of 1 at 10% for four periods. 3.17
1. What is the initial lease liability?
a. 2,536,000
b. 3,200,000
c. 3,000,000
d. 0
2. What is the cost of right of use asset?
a. 1,902,000
b. 2,598,000
c. 2,536,000
d. 0
3. What is the gain on right transferred?
a. 866,000
b. 634,000
c. 750,000
d. 0
4. What is the annual depreciation of the right use asset?
a. 475,500
b. 190,200
c. 634,000
d. 253,600
5. What is the net rental income of the lessor?
a. 800,000
b. 600,000
c. 200,000
d. 400,000
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4. 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

1. What is the initial lease liability?

a. 3,600,000
b. 4,000,000
c. 4,800,000
d. 0

2. What is the cost of right of use asset?

a. 3,000,000
b. 4,320,000
c. 5,760,000
d. 3,600,000

3. What is annual depreciation of the right of use asset?

a. 864,000
b. 720,000
c. 500,000
d. 0

4. What is the loss on right transferred?

a. 4,000,000
b. 3,280,000
c. 2,000,000
d. 1,500,000

5. What amount of net rental income should be reported by the lessor?

a. 1,000,000
b. 1,500,000
c. 800,000
d. 200,000

END
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