Reference no: EM132788386

Problem 1: On January 1, 2019, Push Co entered into an agreement to lease a machine that had an estimated life of four years. The lease period is also four years, at which point the asset will be returned to the leasing company. Annual rentals of P120,000 are payable in arrears from December 31, 2020. The machine is expected to have a nil residual value at the end of its life. The machine had a fair value of P420,000 at the inception of the lease. The lessor includes a finance cost of 15% per annum when calculating annual rentals. How should the lease be accounted for in the financial statements of Push for the year ended December 31, 2019? Why? (Answer here is the kind of lease all in lower case: e.g. finance lease, operating lease, sales type lease, sale and leaseback). Give two reasons.