At the beginning of current year, Killer Company entered into a 5-year lease for drilling equipment. The entity accounted for the acquisition as a finance lease for P 2,400,000, which included a P 100,000 bargain purchase option. At the end of the lease, the entity is expected to exercise the bargain purchase option. The entity estimated that the equipment’s fair value will be P 200,000 at the end of the 8-year life and regularly used straight line depreciation on similar equipment. What amount should be recognized as depreciation expense on the leased asset for the current year? Show your solution.
At the beginning of current year, Killer Company entered into a 5-year lease for drilling equipment. The entity accounted for the acquisition as a finance lease for P 2,400,000, which included a P 100,000 bargain purchase option. At the end of the lease, the entity is expected to exercise the bargain purchase option. The entity estimated that the equipment’s fair value will be P 200,000 at the end of the 8-year life and regularly used straight line depreciation on similar equipment. What amount should be recognized as depreciation expense on the leased asset for the current year? Show your solution.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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At the beginning of current year, Killer Company entered into a 5-year lease for drilling equipment. The entity accounted for the acquisition as a finance lease for P 2,400,000, which included a P 100,000 bargain purchase option. At the end of the lease, the entity is expected to exercise the bargain purchase option. The entity estimated that the equipment’s fair value will be P 200,000 at the end of the 8-year life and regularly used straight line
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