Lease payments 400,000

mult: 5.95
PV of fixed payments + Prepayment 2,380,000.00
Add: PV of the purchase option 135,000.00 500,000 x 0.27
ROU Asset 2,515,000.00 A

Lease payments 400,000

mult: Ord annuity 4.95
1,980,000.00
Add: PV of the purchase option 135,000.00 500,000 x 0.27
Lease Liability 2,115,000.00

Lessee
ROU Asset 2,515,000.00
Cash 400,000
Lease Liability 2,115,000.00

Purchase option - reasonably certain to be exercised (considered in our lease liab)

Lease liability is the PV of the lease payments (below)
ROU assets (same as PPE)

Useful life
1. If there is purchase optio
2. if there is no PO and no t

Include the 100,000 Purcha

ROU assets
Less: RV
DA
Div: UL
Depreciation
ROU assets (same as PPE)

Useful life
1. If there is purchase option (reasonably certain to be exercised) or title passes - use the life of the asset
2. if there is no PO and no transfer of title - lower between life of the asset and the lease term.

Include the 100,000 Purchase option in the 2.4 million. because the entity is reasonably certain to exercise the option

ROU assets 2,400,000

200,000 consider if guaranteed ot if there is renewal option
2,200,000
8
Depreciation 275,000 D
If title passes to the lessee, consider the RV also.

ROU Asset 5,400,000

Less: RV -300,000 considered because title passes
DA 5,100,000
UL 12
Depreciation 425,000 B
lease term 10 lower
UL 12

condition revert back to the lessor

ROU 4,900,000
Less: RV guaranteed -200,000 guarantee RV will only be used when title does not pass or walay Purchase option.
DA 4,700,000
Div: 10 lower between the LT and the UL
Depreciation 470,000
ay Purchase option.
Table
Date IE P
12/31/2022 0 0
12/31/2023 266,500.00 500,000
12/31/2024 243,150.00 500,000

Alternative Table

Date IE P
12/31/2022 - -
12/31/2022 - 500,000.00
12/31/2023 266,500.00 500,000.00
12/31/2024 243,150.00 500,000.00
PV in advance 12/31/2022 3,165,000.00
Less: advance payment 500,000
PV of Lease liability 12/31/2022 2,665,000.00

A CA
0 2,665,000.00
-233,500.00 2,431,500.00 B
-256,850.00 2,174,650.00

A CA
- 3,165,000.00
-500,000.00 2,665,000.00
-233,500.00 2,431,500.00 B
-256,850.00 2,174,650.00
Date IE P A
1/1/2022 0 0 0
12/31/2022 90,000 100,000 -10,000
CA
1,125,000
1,115,000 B
info:
ord annuity in advance or annuity due

Date IE P A CA
12/31/2022 - - - 1,350,000.00
12/31/2022 - 200,000.00 -200,000.00 1,150,000.00
12/31/2023 115,000.00 200,000.00 -85,000.00 1,065,000.00
12/31/2024 106,500.00 200,000.00 -93,500.00 971,500.00

balance 12/31/2022 1,150,000

current 85,000.00 B
noncurrent 1,065,000.00
Total 1,150,000.00
Executory costs - are not part lease payments and therefore expensed as incurred
1. repairs and maintenance
2. insurance
3. CUSA - Common Use Service Area

Date IE P A CA
12/31/2022 - - - 4,170,000.00
12/31/2022 - 1,000,000.00 -1,000,000.00 3,170,000.00
12/31/2023 317,000.00 1,000,000.00 -683,000.00 2,487,000.00 D
12/31/2024 248,700.00 1,000,000.00 -751,300.00 1,735,700.00
e. 3,999,580
This is annuity due

Annual fixed payments 1,300,000

PVF in advance 4.24
PV 5,512,000.00
Add: PV of the guarateed RV 650,000.00 1,000,000 x 0.65
6,162,000.00
Less: advance payments 1,300,000
PV of LL 1.1.2022 4,862,000.00

Date IE P A CA
1.1.2022 4,862,000.00
1.1.2023 437,580.00 1,300,000 -862,420.00 3,999,580.00 Answer
1.1.2024 359,962.20 1,300,000 -940,037.80 3,059,542.20
1.1.2025 275,358.80 1,300,000 -1,024,641.20 2,034,901.00
1.1.2026 183,141.09 1,300,000 -1,116,858.91 918,042.09
12.31.2026 82,623.79 - 82,623.79 1,000,665.88 Guaranteed RV

1.1.2022 Balance 4,862,000.00

Add: accrued interest 437,580.00
5,299,580.00
Guaranteed RV
TRAP
If a third party guarantees the residual value - Ignore (do not consider in the computation of the Lease Payments)

Fixed payments 1,000,000

PVF 6.14
Lease liab 6,140,000

Date IE P A CA
1/1/2022 0 0 0 6,140,000
12/31/2022 614,000.00 1,000,000.00 -386,000.00 5,754,000.00 C
12/31/2023 575,400.00 1,000,000.00 -424,600.00 5,329,400.00
12/31/2024 532,940.00 1,000,000.00 -467,060.00 4,862,340.00
he Lease Payments)
ROU Asset xxx
Less: A/D xxx
Add: Cash Payment xxx
Total consideration xxx
Less: Lease Liab (xxx)
Cost of purchased asset xxx

ROU Asset 2,000,000

Less: A/D -800,000
Add: Cash Payment 1,500,000
Total consideration 2,700,000
Less: Lease Liab -1,300,000
Cost of purchased asset 1,400,000

Journal entry
Machinery 1,400,000
A/D - ROU asset 800,000
Lease liab 1,300,000
ROU asset 2,000,000
Cash 1,500,000
Annual payments 1,530,000
Mult: PVF 9% 5.5
PV of LL 8,415,000

Implicit rate: % at which

PV of the Lease payments FV of the Asset

plus = plus
PV of the unguaranteed RV IDC

Date IE P A CA
12/31/2022 - - - 8,415,000.00
12/31/2022 - 1,530,000.00 -1,530,000.00 6,885,000.00 C
12/31/2023 619,650.00 1,530,000.00 -910,350.00 5,974,650.00
A
Gain or loss = Difference between the CA of the ROU and the CA of the LL

refresher : since there is purchase option 1.) consider the life of the asset as the UL 2.) consider the RV at the end of the life

ROU 4,800,000
Less: RV -300,000
DA 4,500,000
Div: 8 do not use the 6 years na lease term because there is purchase option.
Annual depreciation 562,500

Note Also:
At the end of the lease term, the lease liability will be fully amortized (except for the full amount of the purchase option or th

ROU 4,800,000
Less: A/R 3,375,000
CA of the ROU 1,425,000 ok
vs.
CA of the LL 100,000
Loss on finance lease 1,325,000
RV at the end of the life

s purchase option.

he purchase option or the Guaranteed RV).

IDC will be added to ROU only
Lease incentive will be deducted to ROU only
Lease bonus paid to lessor will be added (additional cost) ROU only
Present value of restoring the building (dismantling costs) ROU only
PO if reasonably certain, consider in LL

Lease Liab
Annual Rental 1,500,000 4.36 6,540,000
Add: PO 1,000,000 0.56 560,000
Lease Liab 7,100,000

ROU
PV of the Liab 7,100,000
Add: IDC 405,000
Less: lease incentive -50,000
Add: lease bonus paid 300,000
dismantling costs 945,000
ROU Asset 8,700,000 A

Depreciation
IF there is transfer of ownership
if yes, use the life of the asset, if no, use the shorter between the UL vs the LT

ROU Asset 8,700,000.00

Div: UL 10
annual depreciation 870,000.00

Date IE P A CA
1/1/2022 0 0 0 7,100,000
12/31/2022 710,000.00 1,500,000.00 -790,000.00 6,310,000.00 A
B
 Cash flows
1 300,000 0.909090909090909 272,727.27
2 300,000 0.826446280991735 247,933.88
3 300,000 0.751314800901578 225,394.44
4 400,000 0.683013455365071 273,205.38
5 400,000 0.620921323059155 248,368.53
6 400,000 0.564473930053777 225,789.57
7 400,000 0.513158118230706 205,263.25
8 400,000 0.466507380209733 186,602.95
1,885,285.28

Cash flows 300,000

PV of OA (3) 2.49
747000 747,000.00

Cash flows 400,000

PV of OA (5) 3.79
1,516,000.00
PV of 1 (3) 0.75
1,137,000.00 1,137,000.00
1,884,000.00

Date IE Payments A
1.1.2022
12.31.2022 188,400.00 300,000 - 111,600.00
12.31.2023 177,240.00 300,000 - 122,760.00
12.31.2024 164,964.00 300,000 - 135,036.00
12.31.2025 151,460.40 400,000 - 248,539.60
12.31.2026 126,606.44 400,000 - 273,393.56
12.31.2027 99,267.08 400,000 - 300,732.92
12.31.2028 69,193.79 400,000 - 330,806.21
12.31.2029 38,868.28 400,000 - 361,131.72

Interest Expense 188,400.00

LL 111,600.00
Cash 300,000.00
 Date IE Payments A
1.1.2022
12.31.2022 188,528.53 300,000 - 111,471.47
12.31.2023 177,381.38 300,000 - 122,618.62
12.31.2024 165,119.52 300,000 - 134,880.48
12.31.2025 151,631.47 400,000 - 248,368.53
12.31.2026 126,794.62 400,000 - 273,205.38
12.31.2027 99,474.08 400,000 - 300,525.92
12.31.2028 69,421.49 400,000 - 330,578.51
12.31.2029 36,363.64 400,000 - 363,636.36
C

CA
1,884,000.00
1,772,400.00
1,649,640.00
1,514,604.00
1,266,064.40 B
992,670.84
691,937.92
361,131.72
-
 CA
1,885,285.28
1,773,813.81
1,651,195.19
1,516,314.71
1,267,946.18
994,740.80
694,214.88
363,636.36
- 0.00
 1,000,000.00
3.79
3,790,000.00 Payment
400,000.00 IDC
- 100,000.00 lease incentive
310,000.00 PV of PO
4,400,000.00 ROU Asset B
8.00 UL of the asset (PO)
550,000.00 C

1,000,000.00
3.79
3,790,000.00 Payment
310,000.00 PV of PO
4,100,000.00
410,000.00 Interest ExpenseA

IE LP A CA
1.1.22 - - - 4,100,000.00
12.31.22 410,000.00 1,000,000 - 590,000.00 3,510,000.00 A
12.31.23 351,000.00 1,000,000 - 649,000.00 2,861,000.00
12.31.24 286,100.00 1,000,000 - 713,900.00 2,147,100.00
12.31.25 214,710.00 1,000,000 - 785,290.00 1,361,810.00
12.31.25 136,181.00 1,000,000 - 863,819.00 497,991.00

500,000 Purcjase option

- 2,009.00 due to rounding off
Purcjase option
due to rounding off
 600,000 Lease Payments
3.79 PV Factor
2,274,000.00 Lease Liab (ROU Assets)

ROU Assets 2,274,000.00

Lease Liability

Date IE Payments
1.1.22
12.31.22 227,400.00 600,000
12.31.23 190,140.00 600,000

Remeasurement
Method 1
Cash flows
600,000 0.925925925925926 555,555.56
600,000 0.857338820301783 514,403.29
600,000 0.79383224102017 476,299.34
800,000 0.735029852796453 588,023.88
800,000 0.680583197033753 544,466.56
800,000 0.630169626883105 504,135.70
800,000 0.583490395262134 466,792.32
800,000 0.540268884501976 432,215.11
4,081,891.76
Method 2 (book)

Cash flow (original) 600,000

PV factor OA (3 periods) 2.58
1,548,000.00 1,548,000.00

Cash flow (extension) 800,000

PV factor OA (3 periods) 3.99
3,192,000.00
Mult: Pv of 1 0.79
2,521,680.00 2,521,680.00
4,069,680.00
Method 3
Cash flow (original) 600,000
PV factor OA (3 periods) 2.5770970
1,546,258.19 1,546,258.19

PV factor OA (8 periods) 5.7466389437253

Less: PV factor OA (3 periods) 2.5770970
3.16954196
800,000.00
2,535,633.57 2,535,633.57
4,081,891.76

Increase in Lease Liab

New CA 4,069,680.00
Old CA 1,491,540.00
increase in LL 2,578,140.00

ROU Assets 2,578,140.00

Lease Liability

Ca of ROU asset 1.1.2024

cost 2,274,000.00
Div: UL 5
Annual Depreciation 454,800.00
Period Used 2
A/D 909,600.00

CA 1.1.2024 1,364,400.00
Add: Change in LL 2,578,140.00
Adjusted Balance of ROU 3,942,540.00 B
 2,274,000.00

A CA
2,274,000.00
-372,600 1,901,400.00
-409,860 1,491,540.00 C

PV of cash flows Differences due to rounding off

D
PV of cash flows Differences due to rounding off

2,578,140.00