IFRS 16 PROBLEM

FIRST PROBLEM

The company entered into a four-year lease contract covering a vehicle. annual lease payments of 1.2 million or do at the beginning of each year starting on January 1, 2023. In addition, a residual value guarantee of 1 million was made even though the expected value of the vehicle at the end of the lease term is P700,000. incremental borrowing rate at this date is 9%.

On January 1, 2024, The expected value was reassessed due to drastic changes in the economy. Incremental borrowing rate as of that date was 11%.

Required: Under each of the following independent scenarios, determine the procedures to account for the reassessment:

1. Expected value increased to P1,100,000
2. Expected value decrease to P200,000

SECOND PROBLEM

On January 1, 2023, the company entered into a six-year lease contract covering an office space. Annual lease payments of P2,100,000 are due at the beginning of each year. These lease payments will be adjusted starting January 1, 2026 using the change in consumer price index (CPI) from January 1, 2023 to January 1, 2025. The incremental borrowing rate as of this date was 6%. CPIs as of January 1, 2023, and 2025 were 120 and 150, respectively. The incremental borrowing rate as of January 1, 2025 was 8%.

Requirement: Prepare the amortization schedule and the journal entries on January 1, 2026.