On January 1, 2020 , Athena Company entered into a ten-year noncancelable lease requiring year-end payments of P 1,000,000. Athena's incremental borrowing rate is 12%, while the lessor's implicit interest rate, known to Athena, is 10%. Present Value factors for an ordinary annuity for ten periods are 6.145 at 10% and 5.650 at 12%. On the same date, Athena Co. paid initial direct cost of P 200,000 in negotiating and securing the lease arrangement. Ownership of the property remains with the lessor at expiration of the lease. There is no bargain purchase option. The leased property has an estimated economic life of 12 years. What amount should be capitalized initially as cost of the leased property?
On January 1, 2020 , Athena Company entered into a ten-year noncancelable lease requiring year-end payments of P 1,000,000. Athena's incremental borrowing rate is 12%, while the lessor's implicit interest rate, known to Athena, is 10%. Present Value factors for an ordinary annuity for ten periods are 6.145 at 10% and 5.650 at 12%. On the same date, Athena Co. paid initial direct cost of P 200,000 in negotiating and securing the lease arrangement.
Ownership of the property remains with the lessor at expiration of the lease. There is no bargain purchase option. The leased property has an estimated economic life of 12 years. What amount should be capitalized initially as cost of the leased property?
Step by step
Solved in 2 steps
