Reference no: EM133183019
Question - ABC Company is under your audit for year 2022, the summary of the related lease transactions for the year under audit were as follows:
Lease of floor building - On December 31, 2019, ABC leased a building to F Company for seven-year period expiring December 31, 2026. Equal annual payments of P2,000,000 are due on December 31 of each year, beginning with December 31, 2019. The lease is properly classified as a finance lease. At inception of the lease, F paid P350,000 as commission to agent and estimated that P400,000 will be paid to restore the property at the end of lease term. The building has a useful life of 20 years at inception of the lease. F guaranteed a residual value of P200,000 at the end of lease term. Assuming all payments are made on time and the rate implicit and effective is at 12%.
Lease of equipment - On January 1, 2022, ABC Company (lessor) enters into a ten-year lease of equipment to LO Corporation (lessee). The equipment has estimated useful life of 15 years. Lease payments are P380,000 per year all payable at the beginning of each year. The fair value of the leased asset on this date P3,132,161. The rate implicit in the lease is 6%. LO Guaranteed a residual value of P300,000. ABC's cost for this asset is P2,400,000. ABC used the lease contract to sold the equipment to its customers who do not have enough cash to buy outrightly.
Required - How much gross profit should ABC Company report in its profit or loss for the year ended December 31, 2022?
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