HELLO STUDENTS

MAG ARAL KAYO MABUTI!!

 1 ROU Asset
Lease liability recognized
PV of Annual Rental
1,500,000 x 4.36 6,540,000
PV of Purchase Option
1,000,000 x 0.56 560,000
Lease liability recognized 7,100,000
Initial Direct Cost 405,000
Lease bonus 300,000
Lease incentives - 50,000
PV of Restoration cost 945,000
TOTAL ROU Asset 8,700,000

2 ROU Asset 8,700,000

Useful life 10
Annual Depreciation 870,000

PV of Annual Rental
3 1,500,000 x 4.36 6,540,000 Date Int Payable Interest Exp Annual Pmts PV
PV of Purchase Option
1,000,000 x 0.56 560,000 1/1 7,100,000
Lease liability 7,100,000 12/31 - 710,000 1,500,000 6,310,000
Lease liability, end
(7,100,000 x 1.1) -1.5M 6,310,000

4 Interest Expense 710,000

Liability on restoration 75,600
785,600
Initial Measurement of Lease liability
Present Value of Lease payments that are not yet paid as of the commencement date.

Lease Payments include:

Fixed payments
 Variable lease payments
Amounts expected tp be payable by the lessee under residual value guarantee
Exercise price of a purchase option if the lessee is reasinably certain to exercise that option
Termniation penalties if the lease term reflects the exercise of termination option

Subsequent Measurement
AMORTIZED COST

ROU Asset
Initial Measurement
The amount of lease liability
Any lease payments made at or before commencement date, less any incentives received
Any initial direct costs incurred by the leases
The PV of restoration cost and decommissioning for which has incurred an obligation

Subsequent Measurement
GENERAL RULE: COST MODEL
EXEMPTION:
Revaluation model
Fair Value model

PFRS 16 provides that the lessee shall depreciate the ROU Asset over the USEFUL LIFE OF THE UNDERLYING ASSET under the following conditon
1 The lease contract TRANSFER OWNERSHIP to the lessee by the end of lease term
2 There is a reasonable certainty that the lessee will exercise a PURCHASE OPTION

Any other case, the lessee depreciates the underlying asset over the SHORTER of the asset's useful life and the lease term
 PV of rental pmts
1 1M X 3.99 3,990,000 Date Int Payable Interest Exp Annual Pmts PV
1/1 3,990,000
Lease liab, end
(3.99M x 1.08) - 1M 3,309,200 12/31 - 319,200 1,000,000 3,309,200
(2)

Executory costs are expensed immediately

 PV of rental pmts
1 2M X 3.79 7,580,000 Date Int Payable Interest Exp Annual Pmts PV
PV of Guaranteed RV
1M x 0.62 620,000 1/1/2022 8,200,000
Lease liability 8,200,000 12/31/2022 - 820,000 2,000,000 7,020,000 (1)
12/31/2023 - 702,000 2,000,000 5,722,000

2 PV, 12/31/2022 7,020,000

PV, 12/31/2023 5,722,000
Current Portion 1,298,000

3 Interest Expense 820,000

OPERATING LEASE

Rental Income
1 4.8M x 9/12 3,600,000
Bonus
900K x 9/36 225,000 12 x 3 months = 36 months
Dep of Indirect Costs
300K x 9/36 - 75,000
Dep of Machine
6M/10 - 600,000
3,150,000

The accounting for operating lease is STRAIGHT FORWARD. The lessor recognizes the lease payments as income of an straightline basis over the lease term,
unless other systematic basis is more representative of the patter in which benefit from the use of the underlying asset is diminished.

This accounting treatment of the lessor is the same for the accounting treatment o lessess for operating leases.

Initial Direct Cost often incurred by the lessor and include amounts such as commissions, legal fees and internal costs that are incremental and directly attributable
Depreciation Lease bonus received by the lessor from the lessee is recognized as unearned rent income to be amortized over the lease term.
Lease Bonus
Lease bonus paid by the lessee to the lessor in addtion to the periodic rental is treated as prepaid rent expense by the lessee to be amortized over
Security Deposits Any security deposit refundable upon the lease expiration shall be accounted for as liabilty by the lessor
Any security deposit reundable upon the lease expiration is accounted for as an asset by the lessee
nd directly attributable to negotiating and arranging a lease

ee to be amortized over the lease term.

1 Lease term 60 2022 Rent Receivable 85,000 *per month
Free 9 Rent Income 85,000
with collection 51
2023 Cash 100,000
Total collection
100K x 51 months 5,100,000 Rent Income 85,000 *per month
Rent Income per month 85,000 Rent Receivable 15,000

Rent Income 2023

85K x 12 months 1,020,000

Current Collection
2 100K x 12 months 1,200,000 2022 9 months
Cummulative Rent
Income
85K x 21 months - 1,785,000 2023 12 months
Rent Receivable 12/31/20 - 585,000 Cummulative months 21
*per month

*per month
SALE and LEASEBACK TRANSACTION

1 Annual Rental 800,000

PV OA 3.17
Initial Lease Liability 2,536,000

Lease liability = Interest retained

2 ROU Asset = (Interest Retained/FV asset) x CA of Asset

ROU Asset = (2,536,000/6,000,000) x 4,500,000
ROU Asset 1,902,000

3 FV asset 6,000,000
less: CV Asset - 4,500,000
Total Gain/(Loss) 1,500,000

FV Asset 6,000,000
less: Int Retained - 2,536,000
Right Buyer-lessor 3,464,000

Gain/(loss) = (Right Buyer-lessor/FV asset) x Total Gain/(loss)

Gain/(loss) = (3,464,000/6,000,000) x 1,500,000
Gain on rights transferred 866,000

4 Rent income 800,000

less: Depreciation Exp - 600,000
Net Income 200,000

A sale and leaseback transaction is an arrangement whereby one party sells a property to another party and then immediately leases the property back from its new owner

The transaction results to a scenario, the seller becomes a seller-lessee and the purchaser, buyer-lessor
rty back from its new owner
SALE and LEASEBACK TRANSACTION

1 Annual Rental 1,500,000

PV OA 3.60
Initial Lease Liability 5,400,000

SP>FV
Sales Price 20,000,000
Fair Value 18,000,000
Additional Financing 2,000,000

Interest Retained 3,400,000 Under PFRS 16, when a sale and leaseback transaction occurs at a price above fair value, the excess amount sh

ROU Asset = (Interest Retained/FV asset) x CA of Asset

ROU Asset = (3,400,000/18,000,000) x 10,800,000
2,040,000
2
FV asset 18,000,000
less: CV Asset - 10,800,000
Total Gain/(Loss) 7,200,000

FV Asset 18,000,000
less: Int Retained - 3,400,000
Right Buyer-lessor 14,600,000

Gain/(loss) = (Right Buyer-lessor/FV asset) x Total Gain/(loss)

Gain/(loss) = (14,600,000/18,000,000) x 7,200,000
Gain on rights transferred 5,840,000

3 Rent income 1,500,000

3.4M/5.4M
Net Income 944,444
4 Financing asset 2,000,000
Collection - 315,556
1,684,444
value, the excess amount should be adjusted in determining the right-of-use (ROU) asset.
DIRECT FINANCING LEASE - LESSOR

1 Net Investment = cost of the asset PLUS any initial direct cost incurred by he LESSOR
Net Investment = Cost + IDC
Net Investment = 6,000,000 + 0
Net Investment 6,000,000

2 Gross Investment = gross rentals for the entire lease term PLUS the absolute amount of residual value, whether guaranteed or unguaranteed. This is the amount debited to lease re
Annual Lease
1,750,000 x 5 years 8,750,000 1/1 Lease Receivable 9,025,000
Unguaranteed RV 275,000 Machine 6,000,000
Gross Investment 9,025,000 Unearned Int Rev 3,025,000

12/31 Cash 1,750,000

Lease Receivable 1,750,000

3 Interest Income Unearned Int 900,000

6,000,000 x 15% 900,000 Int Rev 900,000

CA Lease, 12/31
4 (6M x 1.15) - 1,750,000 5,150,000

RESIDUAL VALUE
Unlike lessees who account for guaranteed residual value only, lessors account for BOTH GUARANTEED and UNGUARANTEED Residual Values, provided the asset REVERTS back to th
to lease receivable

S back to the lessor at the end of lease term.

SALES TYPE LEASE - LESSOR
The income of the lessor includes INTEREST INCOME and DEALER PROFIT OR LOSS

1 Gross Investment = Gross rentals for the entire lease term PLUS the absolute amount of the Residual Value, whether guaranteed of unguaranteed
Lease Payable
1.5M x 5 years 7,500,000
Guranteed RV 500,000
Gross Investment 8,000,000

2 Net Investment = PV of the gross rentals PLUS the PV pf the RV, whether guaranteed or unguaranteed
PV of Gross Rentals
1.5M x 3.60 5,400,000
PV of GRV
500K x 0.57 285,000
Net Investment 5,685,000

Interst Income
3 5,685,000 x 12% 682,200

4 Sales = to the net investment in the lease OR fair value of the asset, WHICHEVER IS LOWER
Cost of Sales = cost of the asset sold PLUS IDC incurred by the Lessor
Gross Profit = Sales - Cost of Sales
IDC - expensed immediately in the sales type lease as component of cost of sales

Sales
FV 6,000,000 or
Net Inv 5,685,000 5,685,000
Cost of Sales
4M + 200K - 4,200,000
Gross Profit 1,485,000