Name: Date:

Course and Section: Score:

Direction: Read and analyse the following questions then encircle/write the best answer. NO
ERASURES.

1. Which of the following is not one of the criteria when determining whether a contract is or
contains a lease?

a. Identified asset
b. Right to direct the use of the identified asset throughout the period of use
c. Identified liability
d. Both a and b

2. If the lessor recognizes rent income, then the lease must have been classified as
a. Capital lease
b. Operating lease
c. Finance lease
d. B only

3. Which of the following is not included in the definition of lease payments?

a. Cost of services and taxes to be paid by and reimbursed to the lessor
b. Any amounts guaranteed by a party related to the lessee
c. Any payment by a bargain purchase option that is reasonably certain
d. Required rental payments over the lease term

4. In computing the depreciation of a right to use asset under a lease, the lessee should deduct
a. The residual value guarantee and depreciate over the lease term
b. An unguaranteed residual value and depreciable over the useful life of the asset.
c. An unguaranteed residual value and depreciable over the lease term
d. The residual value guarantee and depreciate over the useful life of the asset

5. The right of use asset is initially measured at

a. Similar to an amortized cost financial liability (but remeasured to reflect any
reassessment or lease modification
b. Cost
c. Present value of the lease payment that are not yet paid at the commencement date
d. Answer not given

6. Depending on its nature, lease modification is accounted for us a

a. Separate lease
b. Remeasurement of the existing lease liability and right of use asset
c. Only a
d. Both a and b
7. In computing the present value of the minimum lease payments, the lessee should use
either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher,
assuming that the implicit rate is known to the lessee.
a. True
b. False

8. According to PFRS 20, lease liabilities are presented in the lessee’s statement of financial
position
a. not presented in the lessee’s financial statements but only in the lessor’s financial
statement
b. together with other liabilities, with disclosure of the line items that include the lease
liability
c. separately from other liabilities of the lessee
d. both b and c
e. all choices are not correct

9. Entity A (customer) enters into a contract with Entity B (supplier) for the use of a data
processing equipment. According to the contract, Entity A shall operate the equipment only
in accordance with the standard operating procedures stated in the accompanying user’s
manual. In assessing the existence of a lease, does Entity Ahave the right to direct the use of
the asset?
a. No, because the asset’s use is restricted
b. Yes, because Entity A has the right to direct how and for what purpose the asset is used
c. Yes, because the asset’s use is predetermined and Entity B is precluded from changing
that predetermined use
d. Maybe yes, maybe no, but exactly I don’t know

10. Statement 1: If the portion of the asset is not physically distinct, the portion is an identified
asset.
Statement 2: Lease liability is subsequently measured at amortized cost without adjustments
for lease reassessments and modifications

a. Only the statement 1 is true

b. Only the statement 2 is true
c. Both the statements are true
d. Bothe the statements are false

11. Statement 1: Economic benefits do not include probable inflows from assets output, which
can be obtained directly or indirectly from using, holding or sub-leasing the asset.
Statement 2: The contract contains three lease component and 2 non leases components.

a. Only the statement 1 is true

b. Only the statement 2 is true
c. Both the statements are true
d. Both the statements are false
12. Statement 1: Variable lease payment are payments made by a lessor to a lessee associated
with a lease or the reimbursement or assumption by a lessor of cost of a lessee.
Statement 2: The recognition exemption of lease bonus is treated as prepaid rent and
recognized as expense on a straight-line basis or another more appropriate basis.

a. Only the statement 1 is true

b. Only the statement 2 is true
c. Both the statements are true
d. Both the statements are false

13. Statement 1: When asset is reverted back to the lessor such as when the ownership will
transfer to the lessee, this indicates that the residual value is not guaranteed because it
inures to the benefit of the lessee rather than the lessor.
Statement 2: The lessee ignores the residual value when depreciating the asset because
ownership transfers to the lessee.

a. Only the statement 1 is true

b. Only the statement 2 is true
c. Both the statements are true
d. Both the statements are false

14. Statement 1: A non-lease is considered a separate element if it transfers goods or services to

the lessee.
Statement 2: There is no adjustment is made on the existing lease liability and right of use
from the original contract.

a. Only the statement 1 is true

b. Only the statement 2 is true
c. Both the statements are true
d. Both the statements are false

15. Statement 1: The recognition exemption of lease bonus is treated as prepaid rent and
recognized as expense on a straight-line basis or another more appropriate basis
Statement 2: Only the amount expected to be payable on the residual value guarantee is
included in the lease payments

a. Only the statement 1 is true

b. Only the statement 2 is true
c. Both the statements are true
d. Both the statements are false
PROBLEM 1

At the beginning of the current year, JJ Co. entity leased a building from a lessor.

Annual rental payable at the end of each year 1, 500, 000

Purchase option that is reasonably certain to be exercised 1, 000, 000

Initial direct cost 405, 000

Lease bonus paid to lessor before commencement of the lease 300, 000

Lease incentive received 50, 000

Present value of restoration cost discounted at 8% for 6 periods 945, 000

Lease term 6 years

Useful life of building 10 years

Implicit interest rate 10%

PV of 1 for 6 periods at 10% 0.56

PV of ordinary annuity of 1 for 6 periods @ 10% 4.36

Requirements:

1. Compute for the amount of lease liability to be reported at year-end?

2. What amount should be reported as cost of the right of use asset?
3. Compute for the interest expense that should be reported for the current year.
4. What amount should be reported as depreciation of the right of use asset for the current
year?

PROBLEM 2:

On January 1, 2023, BORAH Co. entered into a 5-year lease with a lessor. Annual lease payments of
1, 200, 000, including annual executory cost of 200, 000 are payable at the end of each year. The
entity knows that the lessor expects an 8% implicit rate on the lease and the entity has a 10%
incremental borrowing rate. The equipment is expected to have a 10 years useful life. In, addition, a
third party has guaranteed to pay the lessor a residual value of 500, 000 at the end of the lease. The
present value of an ordinary annuity of 1 for 5 years is 3.99 @ 8% and 3.79 @ 10%. The present value
of 1 @ 8% for 5 periods is 0.68 and @ 10% for 5 periods is 0.62.

Requirements:

1. What is the principal amount of the lease obligation on December 31, 2023?
2. What amount should be reported as interest expense for 2023?
PROBLEM 3:

On December 31, 2023, AKOUH NATO Co. leased out two automobiles for executive use. The lease
required the entity to make 5 annual payments of 1, 500, 000 beginning on December 31, 2023. At
the end of the lease term, the entity had a residual value guarantee of the automobiles at 1, 000,
000. The interest rate implicit in the lease is 10% and the Present value factors are:

PV of an ordinary annuity of 1 for 5 periods @ 10% 3.79

PV of an annuity due of 1 for 5 periods @ 10% 4.17

PV of 1 for 5 periods @ 10% 0.62

Requirements:

1. Compute the lease liability on December 31, 2024.

2. What is the current portion of the lease liability on December 31, 2024?
3. What is the interest expense for 2024?

PROBLEM 4:

At the beginning of the current year, SEE RAH ULO Co. entered into a 10-year lease for an equipment.
The entity accounted for the acquisition as a finance lease for 5, 900, 000 which included 400, 000
residual value guarantee. At the end of the lease, the asset shall revert back to the lessor. It is
estimated that the fair value of the asset at the end of its 12-year useful life would be 500, 000. What
amount should be recognized as straight line depreciation on the leased asset for the current year?

“Kung gaano ka kabilis magsagot, ganun ka din sana kabilis mag move-on. Goodluck!!!!”

Prepared by: GROUP 4

Adducul, Deborah

Gadingan, Cielo Marie

Tomas, John Jerald