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What lessor will recognize a net investment in the lease

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On January 1, 2021, Entity X enters into a 3-year lease of equipment for an annual rent of ?100,000 payable at the end of each year. The equipment has a remaining useful life of 10 years. The interest rate implicit in the lease is 10% while the lessee's incremental borrowing rate is 12%. Entity X uses the straight-line method of depreciation.

The relevant present value factors are as follows:

PV of an ordinary annuity of ?1 @10%, n=3............ 2.48685
PV of an ordinary annuity of ?1 @12%, n=3............ 2.40183

Problem 1: Assume the lease is an operating lease. The lessor will recognize a net investment in the lease at the lease commencement equal to

Option 1: P252,314
Option 2: P240,183
Option 3: P0
Option 4: P248,685

Reference no: EM132835266

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