1. On August 1, 2020, ABC Company leased a machine to XYZ company for six years requiring payments of P100,000 at the beginning of each lease year. The machine cost P470,000, which is the fair value at the inception of the lease. ABC company has the option to purchase the machine for P5,000 which is significantly lower than the expected fair value of the machine at lease expiration date. ABC company incurred an initial direct cost of P3,000. The interest rate implicit in the lease is 10%. ABC appropriately recorded the lease as a direct financing lease.

How much total financial revenue would ABC Company earned over the term of the lease?

2. If during the current year, taxable profit is greater than accounting profit and the difference is a temporary difference,
- A deferred tax liability will be recognized in future years.
- A deferred tax asset is recognized at the end of the current year.
- A deferred tax liability is recognized at the end of the current year.
- Deferred tax asset will be recognized in future years.

3. ABC Corporation’s performance during the last three years had not been favorable resulting to a deficit of P950,000 at December 31, 2020. The company, with the approval of the shareholders, decided to eliminate the deficit through quasi- reorganization which would be effected as follows: The company’s 200,000, P20 par ordinary share capital originally issued at an average price of P22 would be reissued with par value of P15. Immediately after the quasi-reorganization, what would be the balance of share premium?

4. ABC Company determined that it has an obligation relating to employees’ rights to receive salaries for future absences, arising from services already rendered. This obligation is related to vesting rights, and payment for future absences is probable. At year-end, the obligations are reasonably estimated as follows:
· Vacation Pay: 1,100,000
· Sick Pay: 900,000

How much should be reported as liability for compensated absences?

5. ABC Company leased equipment to XYZ Company on July 1, 2020, for a ten-year period expiring June 30, 2030. Equal annual payments under the lease are P80,000 and are due on July 1 of each year. The first payment was made on July 1, 2020. The rate of interest implicit in the lease is 9%. The cash selling price of the equipment is P560,000 and the cost of the equipment on ABC's accounting records was P496,000.

Assuming that the lease is appropriately recorded as a sale for accounting purposes by ABC, what is the amount of profit on the sale and the interest revenue that ABC would record for the year ended December 31, 2020?