Problem 5

On January 1, 2020 a manufacturer-lessor leased out a special equipment for P500,000, payable at the end of each year. The incremental borrowing rate is 10%. The lessor paid P50,000 to obtain the lease.

The cost and fair value of the equipment are P1,500,000 and P2,000,000. The equipment had a residual value of P150,000. The useful life of the asset is 10 years, while the lease term was for 5 years.

The fair value of the asset is P80,000 at the end of the lease.

How much is the cost of goods sold recognized on January 1, 2020?

How much is the loss on lease at the end of the lease term?