EXERCISE – SALE AND LEASEBACK
After using for 10 years, Crossing Company sold equipment to Turbina Enterprise for P 1,800,000, its
current fair value. Immediately after its sale, Crossing leased the equipment back for 9 months under a
P 500,000 annual lease from Turbina. The equipment had a cost of P 3,000,000 and had 30 years
estimated life at the its inception.
1. Compute the gain (loss) on sale for Crossing.
Gain = Sales – Carrying Value of Asset
1,800,000 – 500,000 = 1,300,000
2. If the sale happened at the beginning of the year, how much is the net gain (loss) of Turbina in
the year of sale.?
On January 1, 2020, San Pedro Company sold machinery to Echanted Company for P 4,500,000, which is
equal to its fair value. The machine has a remaining life of 15 years.The machine had a cost of P
7,500,000 and an accumulated depreciation of P 3,000,000. The machine is immediately leased by San
Pedro for 4 years at a prevailing annual rental of P 500,000, payable at the end of each year. The implicit
interest rate is 10%. Use until four decimal places for the factors and up to peso value for the amount.
3.
How much is the gain to be recognized by San Pedro on the date of sale?
Gain = Sales – Carrying Value of Asset
4,500,000 – 7,500,000 = (3,000,000)
4. How much is the value of Right of Use Asset?
initial amount of liab
( 500,000 x 3.17) = 1,585,000
ROU = (1,585,000/4,500,000) x 7,500,000 = 2,641,666.67
On January 1, 2020, Sta. Rosa Company sold a 10-year old equipment to Balibago Company for P
2,400,000, 20 % higher than its fair value. The equipment has an estimated useful life of 15 years.The
equipment has a cost amounting to P 4,500,000. The machine is immediately leased by Rosa for 3 years
at a prevailing annual rental of P 500,000, payable at the end of each year. The implicit interest rate is
5%. Use four decimal places for the factors and round to the peso value on peso amounts.
5. How much is the Right of Use Asset recognized by Sta. Rosa?
initial amount of liab
( 500,000 x 3.17) = 1,585,000
ROU = (1,585,000/4,500,000) x 7,500,000 = 2,641,666.6
6. The gain on rights transferred to buyer-lessor?
1,678,800
2,400,000 - 1,585,000 = 1,528,125
1. How much net asset was added (reduced) on the sale leaseback transaction?
On January 1, 2020, Pagsanjan Company sold machine to Los Banos Company for P 1,000,000. The
machine has a remaining life of 5 years.The machine had a cost amounting to P 4,500,000 and an
accumulated depreciation of P 3,300,000. The machine is immediately leased by Pagsanjan for 3 years at
a prevailing annual rental of P 300,000, payable at the end of each year. The implicit interest rate is 10%.
Use four decimal places on its factors while round all peso amounts at the peso value .
2. The lease liability to be recognized by the buyer- lessor ?
3. The Initial value of the right to use asset recognized by the seller-lessee?
4. The loss on rights transferred by the seller- lessee is