Reference no: EM133076322

Question - San Carlos has entered into two contracts during 2021. The first contract entails San Carlos installing and maintaining a telephone system in a building owned by Calatrava Inc. The installation will be completed by March 2022 and the contract will run for ten years. San Carlos will receive a payment of P2 million per annum. San Carlos has installed many similar systems and it can be reliably estimated that the annual cost of the contract will amount to P1.5 million per annum. In order to secure supplies, San Carlos entered into a second contract agreeing to purchase 50,000 units of gas heating fuel for the next five years at a price of P200 per unit. The contract, which is non-cancellable, was signed on November 30, 2021. The supply of gas will commence on July 1, 2022. Since the contract was signed there have been several large discoveries of this type of gas field and as a consequence the market price is expected to prevail for the whole of the period of San Carlos' contract. In relation to the first contract, how much should San Carlos recognize as asset in its December 31, 2021 statement of financial position?

a. P20M

b. P15M

c. P5M

d. 0