What amount be recognized as gain on sale and leaseback

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Question - At the beginning of the current year. Matthias Company sold an equipment to Ricky Corporation for P880.000. an amount that is equal to its fair value. Because of Matthias Company's commitments to its customers to provide their needs for the next four years. Matthias Company immediately leaseback the said equipment.

Information relating to the sale and leaseback transaction is as follows

Carrying amount of the equipment-P680.000

Annual rental payable at the end of each lease year-200.000

Useful life of the equipment -10 years

Lease term-4 years

Implicit rate in the lease- 10%

Present value of an ordinary annuity of 1 at 10% for 4 periods - 3.1699

Required -

1. What amount should be recorded for right of use asset at the commencement of the lease?

2. What amount should be recognized as gain on sale and leaseback?

Reference no: EM133174593

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