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How much is the manufacturer profit recognized

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Question - ABC Company uses lease as a means of selling its equipment. On July 1, 2019, the company leased an equipment to DEF Company. The cost of the equipment to ABC Company was P 684,000. The fair market value (which was the sales price) was P 792,236.54 at the time of the inception of the lease.

Annual lease payments are P 135,000 and are payable in advance for 8 years. The equipment has an expected economic life of 10 years. At the end of the lease term, title to the equipment will pass to DEF Company. Implicit interest rate is 10%.

Assume that at the end of the lease term, the title to the equipment will not pass to the lessee. The lessee however, guarantees a residual value of P 50,000 at the end of the lease term. How much is the manufacturer's profit recognized for the year 2019?

Reference no: EM132871218

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