Reference no: EM132978450

Question - On January 1, 2020, Ashe Company entered into a ten-year non-cancelable lease requiring year-end payments of P100,000. Ashe's incremental borrowing rate is 12%, while the lessor's implicit interest rate, known to Ashe, is 10%. Present value factors for an ordinary annuity for ten periods are 6.145 at 10%, and 5.650 at 12%. Ownership of the property will be transferred at expiration of the lease.

There is no bargain purchase option. The leased property has an estimated economic life of 12 years. Ashe received P10,000 incentives and paid P20,000 direct costs. A residual value of P20,000 was guaranteed by Ashe. On January 1, 2022, Ashe Company leased 50% of the asset to Basch Company for P60,000 year-end rentals for five years. The implicit rate on the same date was 12%. The unguaranteed residual value was P5,000. Ashe account the sublease as a direct finance lease. PV of 1, 12%, 5 periods - 0.5674. PV of ordinary annuity, 12%, 5 periods - 3.6048.

REQUIREMENTS -

1. What is the gain/loss from the sublease?

2. What is the depreciation expense in 2022?

3. What is the carrying amount of the lease liability on December 31, 2022?

4. What is the net income or loss on December 31, 2022?