Problem 4

On January 1, 2020, a lessee leased an office space with 2 floors, for P1,000,00, payable every January 1, starting next year. The lease term was 3 years, while the useful life of the office space was 4 years. The lessee paid P100,000 as lease bonus. The lessor also reimbursed P30,000 to the lessee. The implicit interest rate is 8%.

On January 1, 2022, due to financial difficulties, the lessee and the lessor agreed to modify the lease as follows:

Only 1 floor will be rented.

The annual lease payments will be reduced to P400,000.

The lease term will be extended for 2 more years.

The incremental borrowing rate at this date is 10%.

How much is the interest expense for 2021?

How much is the gain / (loss) on partial termination as of date of modification, if any?

The depreciation to be recognized in 2022 is?

How much is the carrying value of the lease libility as of December 31, 2022?