ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY FARAP-4511

CPA Review Batch 45  May 2023 CPA Licensure Examination

FINANCIAL ACCOUNTING & REPORTING / AUDITING PRACTICE S. IRENEO  G. MACARIOLA  C. ESPENILLA  J. BINALUYO

LEASES
LESSEE
Finance lease model - At the commencement of the lease, a lessee shall recognize a right-of-use asset and a
lease liability.
Operating lease model (IFRS 16 par 5) provides that a lessee is permitted to make an accounting policy to
apply the operating lease model. Under the operating lease model, the lessee does not recognize an asset and
lease liability. The lessee may or may not use the operating lease model if the lease is short-term (has a term of
12 months or less) or if the underlying asset is of low value. The lessee shall recognize the lease payments as an
expense in either a straight-line basis over the lease term or another systematic basis. The accounting standard
does not provide a quantitative threshold as to the amount of a low value lease. Low value asset is a matter of
professional judgment. Low-value underlying assets include personal computers, office equipment and office
furniture.
Initial Measurement:
Right-of-use asset is measured at cost. The cost should comprise:
1. The amount of the initial measurement of the lease liability
2. Any lease payments made at or before the commencement date, less any lease incentives received
3. Any initial direct costs incurred by the lessee and
4. An estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset,
restoring the site on which it is located or restoring the asset to the condition required by the terms and
conditions of the lease, unless those costs are incurred to produce inventories. The lessee incurs the obligation
for those costs either at the commencement date or as a consequence of having used the underlying asset
during a particular period.
Lease liability is measured at the present value of the lease payments that are not paid at that date. The lease
payments shall be discounted using the interest implicit in the lease, if that rate can be readily determined. If
that rate cannot be readily determined, the lessee shall use the lessee’s incremental borrowing rate. At the
commencement date, the lease payments included in the measurement of the lease liability comprise the following
payments for the right to use the underlying asset during the lease term that are not paid at the commencement
date.
1. Fixed payments (including in-substance fixed payments less any lease incentives receivable (such as payment
by the lessor to the lessee associated with a lease or the reimbursement or assumption by the lessor of the
costs of the lessee.
2. Variable lease payments that depend on an index or rate, initially measured using the index or rate as at the
commencement date (example, payments linked to a consumer price index, payments linked to a benchmark
interest rate (such as LIBOR) or payments that vary to reflect changes in market rental rates).
3. Amounts expected to be payable by the lessee under residual value guarantees,
4. the exercise price of a purchase option if the lessee is reasonably certain to exercise that option and
5. Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an
option to terminate the lease.
Subsequent measurement
Right-of-use asset (under the cost model) is measured at cost less any accumulated depreciation and impairment
loss. The lessee shall apply normal depreciation policy for right-of-use asset. The lessee shall depreciate the right-
of-use asset over the useful life of the underlying asset under the following condition (a) the lease transfers
ownership of the underlying asset to the lessee at the end of the lease term, and (b) the lessee is reasonably
certain to exercise a purchase option. If there is no transfer of ownership to the lessee or if the purchase option
is not reasonably certain to be exercised, the lessee shall depreciate the right-of- use asset over the shorter
between the useful life of the asset and the lease term.
Lease liability – the lease liability should be measured increasing the amount to reflect interest on the lease
liability, reducing the carrying amount to reflect the lease payments and remeasuring the carrying amount to
reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.
Lease Modification
A lessee shall account for a lease modification as a separate lease if both
a. The modification increases the scope of the lease by adding the right to use one or more underlying assets;
and
b. The consideration for the lease increases by an amount commensurate with the stand-alone price for the
increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of
the particular contract.
For a lease modification that is not accounted for as a separate lease, at the effective date of the lease modification
a. a lessee shall account for the remeasurement of the lease liability by decreasing the carrying amount of the
right-of-use asset to reflect the partial or full termination of the lease for lease modifications that decreases
the scope of the lease.
b. The lessee shall recognize in the profit or loss any gain or loss relating to the partial or full termination of the
lease
c. Making a corresponding adjustment to the right-of-use asset for all other lease modifications.

Page 1 of 6 0915-2303213  www.resacpareview.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP-4511
LEASES

LESSOR
At the commencement date, the lessor shall classify the lease as either an operating lease of finance lease. A
lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership
of an underlying asset. A lease is an operating lease if it does not transfer substantially all the risks and rewards
incidental to ownership of an underlying asset. Examples of situations that individually or in combination would
normally lead to a lease classified as an operating lease.
1. The lease transfers ownership of the underlying asset to the lessee by the end of the lease term
2. The lessee has the option to purchase the underlying asset at a price that is expected to be sufficiently lower
than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception
date, that the option will be exercised
3. The lease term is for the major part of the economic life of the underlying asset even if title is not transferred
4. At the inception date, the present value of the lease payments amounts to at least substantially all of the
fair value of the underlying asset and
5. The underlying asset is of such a specialized nature that only the lessee can use it without major
modification
Indicators of situations that could also lead to a lease being classified as a finance lease are:
1. If the lessee can cancel the lease, the lessor’s losses associated with the cancelation are borne by lessee
2. Gains or losses from the fluctuation in the fair value of the residual value accrue to the less and
3. The lessee can continue the lease for a secondary period at a rent that is substantially lower than market rent
Initial measurement
At the commencement date, the lessor shall recognize assets held under finance lease in its statement of financial
position and present them as a receivable at an amount equal to the net investment in the lease. The lessor shall
use the interest rate implicit in the lease to measure the net investment in the lease. In the case of a sublease,
if the interest rate implicit in the sublease cannot be readily determined, an intermediate lessor may use the
discount rate used for the head lease (adjusted for any initial direct costs associated with the sublease) to measure
the net investment in the sublease Initial direct cost, other than those incurred by manufacturer or dealer lessors,
are included in the initial measurement of the net investment in the lease and reduce the amount of income
recognized over the lease term.
At the commencement date, the lease payments included in the measurement of the net investment in the lease
comprise the following payments for the right to use the underlying asset during the lease term that are not
received at the commencement date:
1. Fixed payments (including in-substance fixed payments less any lease incentives.
2. Variable lease payments that depend on an index or rate, initially measured using the index or rate as at the
commencement date.
3. Any residual value guarantees provided by the lessor by the lessee, a party related to the lessee or a third
unrelated to the lessor that is financially capable of discharging the obligation under the guarantee
4. The exercise price of a purchase option if the lessee is reasonably certain to exercise the option
5. Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to
terminate the lease.
Manufacturer or Dealer lessors
At the commencement date, lessor shall recognize the following for each of its finance leases:
1. Revenue being the fair value of the underlying asset or if lower, the present value of the lease payments
accruing to the lessor, discounted using a market rate of interest
2. The cost of sale being the cost, or carrying amount if different, of the underlying asset less the present
value of the unguaranteed residual value and
3. Selling profit or loss (being the difference between revenue and the cost of sale
Subsequent measurement
A lessor shall recognize finance income over the lease term, based on a pattern reflecting a constant periodic rate
of return on the lessor’s net investment in the lease.
Lease modification
A lessor shall account for a modification to a finance lease as a separate lease if both
1. The modification increases the scope of the lease by adding the right to use one or more underlying
assets and
2. The consideration for the lease increases by an amount commensurate with the stand-alone price for
the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances
of the particular contract
For a modification to a finance lease that is not accounted for as a separate lease, a lessor shall account for the
modification as follows:
a. If the lease would have been classified as an operating lease had the modification been in effect at the
inception date, the lessor shall:
1. Account for the lease modification as a new lease from the effective date of the modification and
2. Measure the carrying amount of the underlying asset as the net investment in the lease immediately before
the effective date of the lease modification
b. Otherwise, the lessor shall apply the requirements of IFRS 9
Operating leases (lessor)
A lessor shall recognize lease payments from operating leases as income on either a straight-line basis or another
systematic basis. The lessor shall apply another systematic basis if that basis is more representative of the pattern
in which benefit from the use of the underlying asset is diminished.

Page 2 of 6 0915-2303213  www.resacpareview.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP-4511
LEASES

1. A lessor shall recognize costs, including depreciation, incurred in earning the lease income as an expense.
2. The lessor shall add initial direct costs incurred in obtaining an operating lease to the carrying amount of the
underlying asset and recognize those costs as and expense over the lease term on the basis as the
lease income.
3. The depreciation policy for depreciable underlying assets subject to operating leases shall be consistent with
the lessor’s normal depreciation policy for similar assets.
4. A lessor shall apply IAS 36 to determine whether an underlying asset subject to an operating lease is
impaired and to account for any impairment loss identified.
5. A manufacturer or dealer lessor does not recognize any selling profit on entering into an operating lease
because it is not the equivalent of a sale.
6. A lessor shall account for a modification to an operating lease as a new lease from the effective date of the
modification considering any prepaid or accrued lease payments relating to the original lease as part of the
lease payments for the new lease
Sale and Leaseback Transactions
Transfer of the asset is a sale
a. The seller-lessee shall measure the right-of-use asset arising from the leaseback at the proportion of the
previous carrying amount of the asset that relates to the right of use retained by the seller-lessee. Accordingly,
the seller-lessee shall recognize only the amount of any gain or loss that relates to the rights transferred to
the buyer-lessor.
b. The buyer-lessor shall account for the purchase of the asset applying applicable standards and for the lease
applying the lessor accounting requirements.
If the fair value of the consideration for the sale of an asset does not equal the fair value of the asset, or if
payments for the lease are not at market rates, an entity shall make the following adjustments to measure the
sales proceeds at fair value.
a. Any below-market terms shall be accounted for as a prepayment of lease payments; and
b. Any above-market terms shall be accounted for as additional financing provided by the buyer-lessor to the
seller-lessee.
The entity shall measure any potential adjustment required on the basis of the more readily determinable of:
a. The difference between the fair value of the consideration for the sale and the fair value of the asset; and
b. The difference between the present value of the contractual payments for the lease and the present value of
payments for the lease at market rates.
Transfer of the asset is not a sale
1. The seller-lessee shall continue to recognize the transferred asset and shall recognize a financial
liability equal to the transfer proceeds. It shall account for the financial liability under PFRS 9.
2. The buyer-lessor shall not recognize the transferred asset and shall recognize a financial asset equal
to the transferred proceeds. It shall account for the financial asset under PFRS 9

FINANCIAL ACCOUNTING & REPORTING - THEORIES

1. When the lease is qualified for exception and is recognized as an operating lease, the lessee shall recognize
rent expense during the period:
I. Any contingent rent payments (payable) during the period based on rental agreement.
II. Straight-line amortization of total rental payments over the useful life of the asset
III. Straight-line amortization of total rental payments over the lease term
IV. Amortization of any lease bonus over the useful life of the asset
V. Amortization of any lease bonus over the lease term
a. II, IV & V only b. II, IV & V only c. I, IV & V only d. II, III & V only
2. Which statement characterizes an operating lease?
a. Depreciation and interest expense are recorded by the lessee
b. Depreciation and rental revenue are recorded by the lessor
c. Lease rental liability is recorded in the books of the lessee
d. Title of the underlying asset is transferred from the lessor to the lessee
3. The lessee may apply the operating lease model under what condition?
a. Short-term lease only
b. Low value lease only
c. Short-term lease or low value lease and the company apply the exception
d. Under all circumstances
4. Which of the following is not included in the lease liability of the lessee at inception of the lease when
payment is made at the end of each year?
a. the present value of the residual value guaranteed by a third party.
b. the discounted value of the initial lease payment.
c. the present value of the bargain purchase option.
d. the discounted value of the variable payment.
5. Which of the following is not included in the initial cost of the right of use asset (ROUA)?
a. Initial direct cost paid by the lessee.
b. The present value of the expected dismantling cost at the end of lease term.
c. The discounted value of any residual value guaranteed by the lessee.
d. Any lease incentives granted by the lessor to lessee.

Page 3 of 6 0915-2303213  www.resacpareview.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP-4511
LEASES

6. In computing depreciation of a leased asset, the lessee should subtract

a. a guaranteed residual value and depreciate over the term of the lease or useful life whichever is
earlier.
b. an unguaranteed residual value and depreciate over the term of the lease or useful life whichever is
longer
c. a guaranteed residual value and depreciate over the life of the asset.
d. an unguaranteed residual value and depreciate over the life of the asset.
7. A lessee with a finance lease containing a purchase option should depreciate the leased asset over the?
a. life of the asset or the term of the lease, whichever is shorter.
b. life of the asset or the term of the lease, whichever is longer.
c. assets useful life when the option is certain to be exercised by the lessee
d. term of the lease when the option is certain to be exercised by the lessee
8. If there is a transfer of title of the leased asset at the end of the lease term but no option price is available
or is certain on the same asset, the depreciation shall be computed using?
a. lease term c. lease term or useful life, whichever is shorter
b. asset’s estimated useful life d. lease term or useful life, whichever is longer
9. If the lease contract specifies a guaranteed residual value at the end of the lease term and the fair value of
the asset is less than the guaranteed residual value, any difference is:
a. is not recognized by the lessee nor the lessor.
b. is recognized by the lessor as a loss.
c. is recognized by the lessee as a loss.
d. Is disclosed only by the lessee in its financial statement.
10. Gross investment in the lease is equal to?
a. The lease payments under a finance lease of the lessor
b. Present value of lease payments under a lessor’s finance lease and any unguaranteed residual value.
c. Present value of the lease payments under a finance lease of the lessor
d. Sum of the lease payments receivable by a lessor under a finance lease and any unguaranteed
residual value accruing to the lessor.
11. Net investment in a direct financing lease is equal to
a. Fair value of the leased asset
b. Fair value of the leased asset plus initial cost paid by the lessor
c. Fair value of the leased asset minus the amount of guaranteed residual value
d. Fair value of the leased asset plus the amount of unguaranteed residual value
12. Which statement characterized a sales type lease?
a. The lessor recognizes only interest revenue over the useful life of the asset
b. The lessor recognizes only interest revenue over the term of the lease
c. The lessor recognizes a dealer’s profit and interest revenue over the lease term.
d. The lessor recognizes a dealer’s profit at the commencement of the lease and interest revenue over
the term of the lease
13. In a sales-type lease, how would the amount of gross profit be affected when the residual value is
unguaranteed?
a. Decrease b. Increase c. Not affected d. Not determinable
14. An entity sold a building at a gain and simultaneously leased back the building. If the lease was reported as
a finance lease at the time of sale and leaseback, the gain should be?
a. The difference of total FV and CV.
b. The difference of total selling price and CV.
c. The difference of allocated FV and CV using the FV approach.
d. The difference of the FV of rights transferred to the lessor and CV of rights transferred by the lessee.
15. Statement 1: In a sale-leaseback transaction, the lessee shall recognize gain or loss on sale-leaseback
transaction equals to the difference of selling price and carrying value of the asset.
Statement 2: The lessee shall recognize right-of-use asset equals to the present value of the lease liability at
inception of the sale-leaseback transaction.
a. Only statement 1 is true c. Both statements are true
b. Only statement 2 is true d. Both statements are false
16. In a sale and leaseback transaction, any excess of fair value over the carrying amount of the asset shall?
a. Recognized entirely in profit or loss immediately.
b. Recognized entirely in other comprehensive income.
c. Recognized partly in profit or loss immediately.
d. Recognized partly in other comprehensive income.

FINANCIAL ACCOUNTING & REPORTING - PROBLEMS

Problem 1: On January 1, 2023, Shantel Inc. entered a lease contract of machinery to another entity and properly
classified the lease as operating lease (applying the exception of PFRS 16 as low value asset). The machinery
with a carrying value of P1,000,000 and remaining useful life of 10 years will be rented for a monthly lease rental
of P20,000 for the first two years and will be adjusted accordingly every two years (six-year lease term).
Furthermore, the escalation clause section of the contract calls for 10% increase in annual rental fee every two
years, this escalation will be effected on rentals for year 2025 and every two years thereafter. The lessor, being
so affectionate with the lessee, granted a free rent period for a period of six months. Rental payment starts on
the month of July 2023. Agreement between parties also states that 2% of annual revenue from use of the
machine or 20% of net income will be paid as additional rent whichever is lower.

Page 4 of 6 0915-2303213  www.resacpareview.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP-4511
LEASES

The summary of total revenue and expenses reported by Landers from use of the machine in 2023 and 2024
were:
2023 2024
Total revenues P3,000,000 P3,450,000
Total expenses (2,870,000) (2,925,000)
Net Income P130,000 P525,000

1. How much is the total rent expense (lessee) and rent income (lessor) in 2023?
a. 349,800 b. 313,800 c. 240,000 d. 213,400

2. How much is the balance of rent payable (prepaid rent) and rent receivable (unearned rent) at the end of
2023, assuming that the required contingent rent was paid on December 31 of each year?
a. P124,800 rent payable and P124,800 rent receivable
b. P119,600 rent payable and P119,600 rent receivable
c. P134,400 prepaid rent and P134,400 of unearned rent
d. P129,600 rent payable and P129,600 of unearned rent

Problem 2: On January 1, 2023, Nikko Corporation entered into three-year nonrenewable lease, commencing
on that date, for office equipment, the office equipment qualifies for company’s policy as a low value asset and
made the following payments to Nathan Company:
Bonus to obtain lease P 60,000
First years rent 210,000
Second to last year’s rent 100,000
*The contract includes four (4) months of free rent on first year.
1. How much is the rent expense of Nikko Corporation in its statement of comprehensive income for year 2023?
a. 100,000 b. 120,000 c. 126,667 d. 133,333

2. How much is the balance of prepaid rent (rent payable) in its statement of financial position as of December
31, 2023?
a. 96,667 b. 76,667 c. 26,667 d. 6,667

Problem 3: On January 1, 2023, Tagaytay Company enters into a ten-year lease of floor building. The building
has estimated useful life of 20 years. Lease payments are P1,500,000 per year all payable at the beginning of
each year. To obtain the lease, Tagaytay Company incurs initial direct cost of P700,000, of which P300,000 relates
to payment to a former tenant occupying that floor of the building and P200,000 relates to a commission paid to
the real estate agent that arrange the lease and the P200,000 pertains to improvements made in the lease
premises. As an incentive to Tagaytay Company for entering the lease, the lessor agrees to reimburse to Tagaytay
Company the amount of P200,000 for leasehold improvements made in the leased property and an additional
free rent for two months in the first year. Tagaytay guarantees a residual value of P500,000 at the end of lease
term. The rate implicit in the lease is 10%.
1. How much is the initial cost of the right-of-use asset recognized by Tagaytay Co. at inception of the lease?
a. 10,181,543 b. 10,331,307 c. 10,831,307 d. 10,972,694

2. How much is the depr. expense in 2023 and carrying value of the right-of-use asset as of Dec. 31, 2023?
a. P1,033,131 and P9,798,177 c. P968,054 and P9,213,489
b. P983,131 and P9,348,177 d. P1,047,269 and P9,925,425

3. How much is the balance of lease liability as of December 31, 2023?

a. 8,780,852 b. 8,980,852 c. 9,631,752 d. 9,714,438

Problem 4: On January 1, 2023, Amada Company leased a building with a useful life of 8 years from Isabella
Company. The lease term is for a period of 6 years. The annual rental is P2,000,000 payable every December 31
of each year starting 2023. Amada Company incurred and paid P600,000 cost directly associated with the contract
of lease. A P300,000 lease incentive was received by Amada Company at the commencement of the lease in form
of reimbursement from the P600,000 paid by Amada. Amada Company has the option to purchase the building
at the end of the lease term at P500,000 and it is reasonably certain that the option will be exercised. The implicit
rate is 10%. The building is estimated to have P800,000 of residual value at the end of lease term and P700,000
at the end of its useful life.

1. What is the amount of interest expense to be reported by Amada in its December 31, 2022 statement of
comprehensive income?
a. 668,124 b. 694,382 c. 789,203 d. 899,276

2. What is the amount of depreciation to be charged against the profit or loss in 2023 and the carrying value of
the right-of-use asset at the end of 2023?
a. P1,074,095 and P8,218,664 c. P1,074,095 and P7,877,299
b. P1,415,460 and P7,877,299 d. P1,415,460 and P8,218,664

3. What is the balance of the lease liability as of December 31, 2023?

a. 8,992,758 b. 7,892,034 c. 6,681,238 d. 5,349,361

Page 5 of 6 0915-2303213  www.resacpareview.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP-4511
LEASES

Problem 5: The following information pertains to a leased contract entered into by Gatlabayan Company, lessee,
on January 1, 2023: Lease term, 5 years, useful life of the leased asset, 20 years; Annual rental payable at year-
end, P800,000 and the implicit rate is 10%.

The lease contract contains an option for Gatlabayan Company to extend for another 5 years but at the
commencement of the lease, the exercise of the option is not reasonably certain, however on January 1, 2026,
the lessee decided to extend the lease term by another 5 years. However, the annual rental at the start of the
6th year (extended term) will be P1,000,000 and the new implicit rate is 8%.

1. What is the new amount of lease liability on January 1, 2026?

a. 3,312,127 b. 3,992,710 c. 4,437,694 d. 4,849,717

2. What is the interest expense in its December 31, 2026 profit or loss?
a. 138,843 b. 387,977 c. 355,016 d. 319,417

3. What is the amount of depreciation to be reported in the Dec. 31, 2026 profit or loss?
a. 467,434 b. 584,293 c. 667,763 d. 934,868

4. What is the carrying amount of the right of use asset on December 31, 2026?
a. 1,213,052 b. 3,461,289 c. 4,006,576 d. 4,674,339

Problem 6: On January 1, 2023, Erico Corporation (lessor) enters into a ten-year lease of equipment to Krish
Corporation (lessee). The building has estimated useful life of 20 years. Lease payments are P380,000 per year
all payable at the beginning of each year. The fair value of the leased asset on this date P3,076,322. The rate
implicit in the lease is 6%. Erico paid P62,598 of direct cost to effect the lease. Implicit rate after the initial direct
costs is 5.5%. Erico Guaranteed a residual value of P200,000.

1. How much is the amount of interest income should Erico recognized in its December 31, 2023 SCI?
a. 111,968 b. 125,942 c. 139,186 d. 151,741

2. How much is the balance of lease receivable as of December 31, 2023?

a. 3,138,920 b. 2,910,661 c. 2,669,847 d. 2,415,789

Problem 7: Solemn Corporation offers leasing alternative to its customer who do not have the necessary funds
or financing available for outright purchase. The data relative to a typical lease offered to Saint Badyang Company
are as follows:
a. The lease is initiated on January 1, 2023. Payments of P560,000 are due on every January 1 for the
duration of the lease term starting 2023.
b. The non-cancellable fixed portion of the lease term is 10 years. The estimated useful life of the asset is
12 years. The rate implicit on the lease is 12 percent.
c. The leased portion of the building is expected to have residual value of P200,000 at the end of 10 years
which the lessee has guaranteed.
d. The assets cost in the book of the lessor is P2,400,000.
1. How much gross profit should Emma recognized at inception of the lease?
a. 1,549,506 b. 1,485,112 c. 1,208,215 d. 1,143,820

2. How much is the amount of interest income should Solemn recognized in its December 31, 2023 SCI?
a. 365,786 b. 342,480 c. 417,744 d. 432,986

3. How much is the balance of lease receivable as of December 31, 2023?

a. 3,048,215 b. 3,414,000 c. 3,196,480 d. 2,952,858

Problem 8: On January 1, 2023, El Nido Company sold an equipment with a remaining life of 8 years and leased
it back for 5 years. The following information pertains to the sale and leaseback transaction:
Selling price 5,000,000
Carrying value as of 1/1/23 3,000,000
Annual rent payable at the end of each year 800,000
Implicit rate of interest 8%
PV factor of ordinary annuity of 1 at 8% for 5 periods 3.9927100
1. If the fair value of the equipment at the time of sale is P5,000,000, what amount of gain or loss from rights
transferred should El Nido recognized?
a. 400,000 b. 722,333 c. 1,277,664 d. 2,000,000

2. If the fair value of the equipment at the time of sale is P4,000,000, what amount of gain or loss from rights
transferred should El Nido recognized?
a. 400,000 b. 451,458 c. 548,538 d. 1,000,000

3. If the fair value of the equipment at the time of sale is P6,000,000, what amount of gain or loss from rights
transferred should El Nido recognized?
a. 1,500,000 b. 1,097,080 c. 90,2916 d. 600,000

- END -

Page 6 of 6 0915-2303213  www.resacpareview.com