On January 1, 2021, Globe Company sold a piece of machinery to Troll Company for P1,900,000. Because of the entity’s commitments to its customers to provide their needs for the next three years, Globe 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 beginning, 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
On January 1, 2021, Globe Company sold a piece of machinery to Troll Company for P1,900,000. Because of the entity’s commitments to its customers to provide their needs for the next three years, Globe 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 beginning, 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 lease liability recorded on January 1, 2021?
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