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How much is the interest expense to be recognized

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Question - On December 31,2019, ABC Company signed a 5-year, non-cancelable lease for a machine with DEF Company. The terms of the lease called for ABC Company to make annual payments of P 80,000 in advance starting on December 31,2019 and every December 31 thereafter. The machine has an estimated useful life  of 6 years and a P 40,000 unguaranteed residual value at the end of the 5 year lease term. The machine reverts back to the lessor at the end of the 5 year lease term. ABC Company uses the straight line method of depreciation for all its depreciable assets.

The rate implicit in the lease, which is not known to ABC Company is 12%. Incremental Borrowing rate of ABC Company is 10%.

How much is the interest expense to be recognized by ABC Company for the year 2021?

Reference no: EM132892614

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