Reference no: EM133013608

Question - On January 1, 2019. an entity entered into a 6-year lease with a lessor. Annual lease payments of P1,500,000 including annual executory cost of P300,000 are payable at the end of each year. The entity knows that the lessor expects - 10% implicit rate on the lease. The entity has a 12% incremental borrowing rate. The equipment is expected to have a useful life of 10 years. In addition, a related party of the lessor has guaranteed to pay the lessor a residual value of P500,000 at the end of the lease. The present value of an ordinary annuity of 1 for 6 years is 4.35 at 10% and 4.11 at 12%. The present value of 1 at 10% for 6 periods is 0.56 and at 12% for 6 periods is 0.51. On December 31, 2019, what is the carrying amount of the lease obligation?