Problem 11-1

Given: (Refer to book)

Required:
1. Amortization Table for years 2020 to 2022
2. Journal Entries for 2020
3. Remeasurement of Lease Liability on 1/1/2023
4. New Amortization Table for years 2023 to 2029
5. Journal Entries for 2023

Solution:
PV of Lease Payment – 1/1/2020 (600,000*3.89) 2,334,000

Table of Amortization for years 2020 to 2022:

Date Payment 9% Interest Principal Present Value

1/1/2020 P 2,334,000
12/31/2020 P 600,000 P 210,060 P 389,940 1,944,060
12/31/2021 600,000 174,965 425,035 1,519,025
12/31/2022 600,000 136,712 463,288 1,055,737

Journal Entries for 2020

Jan 1 Right of Use Asset P 2,334,000

Lease Liability P 2,334,000

Dec 31 Interest Expense 210,060

Lease Liability 389,940
Cash 600,000

31 Depreciation (2,334,000/5) 466,800

Accumulated Depreciation 466,800

Remeasurement of Lease Liability

*IFRS 16, par 39 – Remeasurement of Lease Liability = adjusted carrying amount of the
Right of Use Asset
*New Implicit Interest Rate – 12%

Annual rent for 2 remaining years of old lease term 600,000

Multiply by PV of ordinary annuity of 1 at 12% for 2 periods 1.69
PV – 1/1/2023 1,014,000
Annual Rent for 5 years starting 1/1/2025 800,000
Multiply by PV of ordinary annuity of 1 at 12% for 5 periods 3.605
PV – 1/1/2025 2,884,000
Multiply by PV of ordinary annuity of 1 at 12% for 2 periods 0.797
PV – 1/1/2023 2,298,548

PV of remaining rentals of old lease term 1,014,000

PV of rentals of lease term extension 2,298,548
Total PV – 1/1/2023 3,312,548
Less: PV of lease liability - 12/31/2022 1,055,737
Increase in lease liability -1/1/2023 2,256,811
Carrying Amount – 12/31/22
Right of Use Asset – 1/1/2020 2,334,000
Less: Accumulated Depreciation –
12/31/2022 (466,800*3) 1,400,400 933,600
Adjusted Carrying Amount of
Right of Use Asset – 1/1/2023 P 3,190,411

Table of Amortization for years 2023 to 2029

*PV of 1/1/2023 is the Total PV stated above

Date Payment 12% Interest Principal Present Value
1/1/2023 P 3,312,548
12/31/2023 P 600,000 P 397,506 P 202,494 3,110,054
12/31/2024 600,000 373,206 226,794 2,883,260
12/31/2025 800,000 345,991 454,008 2,429,251
12/31/2026 800,000 291,510 508,490 1,920,761
12/31/2027 800,000 230,491 569,509 1,351,252
12/31/2028 800,000 162,150 637,850 713,402
12/31/2029 800,000 86,598 713,402 -

Journal Entries for 2023

*Lease Term – reduced by 3 years due to expiration. So, 10-3 = 7 remaining years

Jan 1 Right of Use Asset P 2,256,811

Lease Liability P 2,256,811

Dec 31 Interest Expense 397,506

Lease Liability 202,494
Cash 600,000

31 Depreciation (3,190,411/7) 455,773

Accumulated Depreciation 455,773