Reference no: EM132949210

Questions-

Q1) On January 1, 2021, Red Company sold a piece of machinery to Black Company for P1,900,000. Because of the entity's commitments to its customers to provide their needs for the next three years, Red Company simultaneously leased back the machinery. The transfer of the asset to the buyer qualifies to be accounted for as a sale under IFRS 15. Information relating to this transaction follows:

Fair value of machinery- P2,200,000

Carrying amount of machinery- P1,700,000

Remaining useful life of the machinery- 8 years

Lease term- 3 years

Annual rent payable at the end of each year, starting on December 31, 2021- P500,000

Market rate of interest- 10%

PV of an ordinary annuity of 1 at 10% for 3 periods is 2.4869

PV of an annuity due of 1 at 10% for 3 periods is 2.7355

How much is the gain on sale-leaseback?

Q2) Blue Company leased office premises to Pink, Inc. for a two-year term beginning March 1, 2021 up to February 28, 2023. Under the terms of the operating lease, rent for the first lease year is P20,000 per month and will increase by 10% in the monthly rent for the following lease year.

In its financial statements for the fiscal year ending June 30, 2022, what amount should Blue Company report as rent revenue?