Rent

2 parties:
lessOR lessEE
property owned right to use
consideration = pay

A - OR B -EE C -EE
B -OR

OPERATING LEASE FINANCE LEASE

LESSOR Cash Lease Receivable CASH
Rent Income Asset or Sales LEASE RECEIVABLE

LESSEE Rent expense Right of use asset

Cash Lease Liability

1.Right of use asset

initial recognition 1. PV LP
2. Lpbefore or at commencement date 3yrs =
** lease bonus less lease incentives received
3. IDC
4. Est cost of dismantling, removing, restoring the asset
** present obligation

subsequent recog carrying value = cost minus accum dep'n - impairment loss
= remeasured based on the adjustment done to lease liab

lease term 5 years

2.improvements to the leasehold 2 asset - ppe LIFE OF IMP
LEASE TERM
3. Security deposit /refundable deposit asset - other assets
EE Security deposit / Refundable deposit - asset
Cash

Loss on breach
Security deposit

OR Cash
Customer deposit - liability
 Customer deposit
Other income

Right of use Asset

Depreciate use the life of the leased asset
> transfer of ownership
> bargain purchase option

whichever is shorter between life of leased asset vs lease term

> no mention of TO or a BPO

Lease liability
initial recog Present value of lease payments (PVLP)
1. Fixed lease payments
2. variable lease payments
3. purchase option - provided reasonable certain
4. guaranteed residual value
5. termination penalties

commencement date 1-Jan-20

underlying asset/
leased asset machinery pvfactor pvlp
lease payment 100,000 3.0373 303,730
** transfer of ownership
lease term 4 years

Right of use asset 303,730

Lease liability 303,730

Depreciation expense 75,932.50

Accumulated depreciation 75,932.50
(303,730/ 4 yrs = life of asset = TO)

RIGHT OF USE ASSET

Cost 303,730.00
Less: Accum depreciation 75,932.50
Carrying value 227,797.50
Lease liability (Principal 63,552
Interest expense 35,448
Cash 100,000
 A - OR B - EE
50,000 Per month 20,000 per month
lease term
36 months 36 36
1,800,000 720,000

lease bonus 500,000 start of contract

1,220,000

2 YRS
1.5 YRS
 IS IT A LEASE?

Identified Asset Right to control the use If the lessee has the control of the identified asset,
of an identified asset then the right of use exists.

Right to obtain substantially If the lessee will benefit from the asset and substanti
all economic benefits the lessee will use it, then the right of use exists.
from use

Right to direct the use If the lessee is drectly using the asset and benefit
from it, then the right of use exists.

2 KINDS OF LEASE

1. OPERATING LEASE
For lessee: as part of the exception of PFRS 16
A. Short term period
B. Low value lease

For lessor: if it does not meet the criteria of a finance lease

Recognizes the accounts such as:

LESSEE LESSOR
Rent expense Rent income
Prepaid rent ( lease bonus ) Unearned rent income
Rent payable Rent receivable

* Security deposit (Asset) Customer's deposit (Liability)

* Executory costs - expense Executory costs - expense

Components included in the computation of Rent expense/income

1. periodic rent (computed straight line for unequal rental schemes)
2. lease bonus amortization based on the lease term
3. Contingent rent (example: rent based on the % of sales)

2. FINANCE LEASE
** A lease that transfer substantially all the rights and rewards incidental to ownership of the underlying asse
For lessee: GENERALLY, accounts the lease as finance lease
Unless opts to use operating lease as part of the exception of PFRS

For lessor: if it meets AT LEAST ONE of the following criteria:

1. Transfer of Title or Ownership
2. Bargain purchase option or a Certain purchase option
3. if lease term is equal or 75% or more of the economic life of the leased asset
4. If the PV of lease payment is substantially equal or 90% of the Fair value of the
leased asset upon the inception of the lease
5. The asset is specialized in nature that lessee could use it without major
modification

Recognizes the accounts such as:

LESSEE LESSOR
Right of Use Asset (ROUA) Lease Receivable
- underlying asset - net investment
Lease Liability Unearned interest income
- amortized and recognized
as interest income over the
lease term using the
effective interest method

A. LESSEE ACCOUNTING

UPON INITIAL VALUATION:

1. Lease Liability
** measured at PV of lease payments that are not paid (discounted using
** lease payments are payments made by the lessee to lessor relating to r
which comprise of:
A. Fixed payment (less any lease incentives)
B. Variable lease payments
C Purchase option which is CERTAIN to exercise by the
D Guaranteed residual value
E Penalties upon cancelation of lease contract

NOTE: At MOST, only 3 can be included in the computa

 2. Right of Use Asset (ROUA)
**The cost INITIALLY comprise:
A. The amount of the initial measurement of lease liabil
B. Any lease payments made at or before the commenc
any lease incentives received such as free rent.
C. Any INITIAL DIRECT COST (IDC) incurred by the LESSE
lease incentives in form of reimbursements by lesso
D. An estimate of cost to be incurred by the lessee in di
removing the underlying asset or restoring the site o
asset is located DISCOUNTED at effective rate of inte
of the lease.

UPON SUBSEQUENT VALUATION:

1. Lease Liability
** measured using the effective interest method
** the liability is affected by the following:
1 Reduced by any lease payments made during the yea

Lease liability
Cash

2 Increased by any interest accrued at year end ( in cas

Interest expense
Lease liability

3 Increases (decreased) by any amount of remeasuring

reassessment or lease modification

Right of use Asset (ROUA)

Lease liability

Lease liability
Right of Use Asset (ROUA)

2. Right of Use Asset (ROUA)

** measured at carrying value (net of accumulated depreciation)
ontrol of the identified asset,

fit from the asset and substantially

hen the right of use exists.

using the asset and benefit

of use exists.

x y
1-Oct first talk 50,000 30,000
7-Oct 2nd talk 30,000 30,000 inception date
10,000 10,000

10-Oct 40,000

15-Oct rented commencement date

al schemes)

nership of the underlying asset to the lessee

life of the leased asset
% of the Fair value of the

e it without major

are not paid (discounted using the implicit rate)

he lessee to lessor relating to right of use

ny lease incentives)

h is CERTAIN to exercise by the lessee at inception

ation of lease contract

an be included in the computation

tial measurement of lease liability
ade at or before the commencement date LESS
eceived such as free rent.
OST (IDC) incurred by the LESSEE less any
m of reimbursements by lessor to the lessee
be incurred by the lessee in dismantling, and
ying asset or restoring the site on which the
OUNTED at effective rate of interest at inception

payments made during the year

xx
xx

est accrued at year end ( in case of payment in advance)

xx
xx

by any amount of remeasuring the CV to reflect any

ase modification

use Asset (ROUA) xx

xx

xx
ht of Use Asset (ROUA) xx

mulated depreciation)
LESSEE
RENT EXPENSE
TOTAL EXPENSE INCURRED WITH REGARDS TO THE LEASE
= RENT EXPENSE + EXECUTORY COSTS + DEPRECIATION OF LEASEHOLD IMPROVEM
RENT PAYABLE ** WHICHEVER IS SHORTER BETWE
PREPAID RENT

LESSOR
RENT INCOME
TOTAL EXPENSES INCURRED WITH REGARDS TO THE LEASE
= EXECUTORY COSTS + DEPRECIATION EXPENSE OF UNDERLYING ASSET
NET INCOME WITH REGARDS TO THE LEASE 2022
RENT INCOME 270,800.00
- EXECUTORY COSTS -
- DEPRECIATION EXPENSE OF UNDERLYING ASSET
=1300,000 / 10 YEARS (130,000.00)
NET INCOME 140,800.00
RENT RECEIVABLE
UNEARNED RENT INCOME
 Commencement date: 1-Jan-22
Carrying value of Machinery 1,300,000
EUL 10 YEARS
MONTHLY RENT 20,000.00 Subj to 10% escalation
LEASE TERM 6 YEARS 31-Dec-27
FREE RENT 6 MONTHS January 1 - June 30, 2022
CONTINGENT RENT 2% of revenue whichever is lower
20% of net income

# of mos
1st year Jan1 - Dec 31, 2022 20,000 6
2nd year Jan1 - Dec 31, 2023 20,000 12
3rd year Jan1 - Dec 31, 2024 22,000 12
4th year Jan1 - Dec 31, 2025 22,000 12
5th year Jan1 - Dec 31, 2026 24,200 12
6th year Jan1 - Dec 31, 2027 24,200 12
total
divided by: lease term
Rent expense per year ( periodic rent)

Total rent expense 2022

Periodic rent 244,800
Add: Contingent rent
2% of revenue 60,000
F LEASEHOLD IMPROVEMENT 20% of net income 26,000 26,000
WHICHEVER IS SHORTER BETWEEN total 270,800
LIFE OF THE IMPROVEMENT
LEASE TERM JOURNAL ENTRIES: LESSEE
1st year Rent expense 244,800.00
Cash
Rent payable
RLYING ASSET
Rent expense 26,000.00
Cash

** LIFE OF THE ASSET 2nd year Rent expense 244,800.00

Cash
Rent payable

Rent expense 69,000.00

Cash
3rd year Rent expense 244,800.00
Rent payable 19,200.00
Cash

4th year Rent expense 244,800.00

Rent payable 19,200.00
Cash

5th year Rent expense 244,800.00

Rent payable 45,600.00
Cash

6th year Rent expense 244,800.00

Rent payable 45,600.00
Cash

JOURNAL ENTRIES: LESSOR

1st year Cash 120,000.00
Rent receivable 124,800.00
Rent income

Cash 26,000.00
Rent income

2nd year Cash 240,000.00

Rent receivable 4,800.00
Rent income

Cash 69,000.00
Rent income

3rd year Cash 264,000.00

Rent receivable
Rent income

4th year Cash 264,000.00

Rent receivable
Rent income

5th year Cash 290,400.00

 Rent receivable
Rent income

6th year Cash 290,400.00

Rent receivable
Rent income
j to 10% escalation

uary 1 - June 30, 2022

ichever is lower

120,000
240,000
264,000
264,000
290,400
290,400
1,468,800
6
244,800

2023
244,800

69,000
105,000 69,000
313,800

Rent Payable
124,800.00 2022
120,000.00 4,800.00 2023
124,800.00 129,600.00 2023
2024 19,200.00
110,400.00 2024
26,000.00 2025 19,200.00
91,200.00 2025
2026 45,600.00
240,000.00 45,600.00 2026
4,800.00 2027 45,600.00
(0.00)

69,000.00
264,000.00

264,000.00

290,400.00

290,400.00

Rent Receivable
2022 124,800.00
4,800.00
244,800.00 129,600.00 2023
2024 19,200.00
110,400.00 2024
26,000.00 2025 19,200.00
91,200.00 2025
2026 45,600.00
45,600.00 2026
244,800.00 2027 45,600.00
(0.00)

69,000.00

19,200.00
244,800.00

19,200.00
244,800.00
 45,600.00
244,800.00

45,600.00
244,800.00
 Rent Receivable
2022 124,800
4,800
129,600 2023
2024 19,200
110,400 2024
2025 19,200
91,200 2025
2026 45,600
45,600 2026
2027 45,600
c
commencement date: 1-Jan-22
lease term: 3 years
lease bonus 120,000

1st year Jan1 - Dec 31, 2022 100,000

2nd year Jan1 - Dec 31, 2023 80,000
3rd year Jan1 - Dec 31, 2024 80,000
total
divided by: lease term
Rent expense per year ( periodic rent)

Lease bonus
Divided by: lease term
Periodic amortization ( per year)

Rent expense
1st year Periodic rent
2022 Add: Amortization of lease bonus
Total rent expense, 2022

JOURNAL ENTRIES:
Prepaid rent
Cash

Rent expense
Rent payable
Cash

Rent expense
Prepaid rent

2nd year Periodic rent

2023 Add: Amortization of lease bonus
Total rent expense, 2023

JOURNAL ENTRIES:
Rent expense
Rent payable
Cash
 Rent expense
Prepaid rent

3rd year Periodic rent

2024 Add: Amortization of lease bonus
Total rent expense, 2023

JOURNAL ENTRIES:
Rent expense
Rent payable
Cash

Rent expense
Prepaid rent

Rent income - LESSOR

1st year Periodic rent
2022 Add: Amortization of lease bonus
Total rent expense, 2022

JOURNAL ENTRIES:
Cash
Unearned rent income

Cash
Rent receivable
Rent income

Unearned rent income

Rent income

2nd year Periodic rent

2023 Add: Amortization of lease bonus
Total rent expense, 2023

JOURNAL ENTRIES:
Cash
Rent receivable
Rent income
 Unearned rent income
Rent income

3rd year Periodic rent

2024 Add: Amortization of lease bonus
Total rent expense, 2023

JOURNAL ENTRIES:
Cash
Rent receivable
Rent income

Unearned rent income

Rent income
Jan 1, 2022 - Dec 31, 2024

100,000
80,000
80,000
260,000
3
86,666.67

120,000
3
40,000

86,666.67 Rent Payable

40,000.00 2022 13,333.33 -
126,666.67 6,666.67 2023
2023 6,666.67
- 6,666.67 2024
120,000.00 - 2024
120,000.00

86,666.67
13,333.33
100,000.00

40,000.00
40,000.00

86,666.67
40,000.00
126,666.67

86,666.67
6,666.67
80,000.00
 40,000.00
40,000.00

86,666.67
40,000.00
126,666.67

86,666.67
6,666.67
80,000.00

40,000.00
40,000.00

86,666.67
40,000.00
126,666.67

120,000.00
120,000.00

100,000.00
13,333.33
86,666.67

40,000.00
40,000.00

86,666.67
40,000.00
126,666.67

80,000.00
6,666.67
86,666.67
40,000.00
40,000.00

86,666.67
40,000.00
126,666.67

80,000.00
6,666.67
86,666.67

40,000.00
40,000.00
 Prepaid rent
2022 120,000
40,000 2022
2022 80,000
40,000 2023
2023 40,000
40,000 2024
-