Question
On October 30, 2020, A Co. purchased an equipment. The terms of the sale called for A Co. to pay P5,000,000 on October 30, 2022.
On October 30, 2020, A Co. purchased an equipment. The terms of the sale called for A Co. to pay P5,000,000 on October 30, 2022. A Co. gave the seller a non-interest bearing note for this amount. At the date of purchase, the interest rate for this type of loan was 13%. A Co. recorded this transaction as a debit to purchases and a credit to note payable at P5,000,000. The company depreciates the equipment at 12% per annum accordingly.
What is the understatement (overstatement) in the companys profit for the year ended December 31, 2020? Show your solution.
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