On January 1, 2022, ABC Company signed a 5-year non-cancelable lease for a building. This is also the period when the contract is enforceable. The terms of the lease called the ABC to make annual payments of P500,000 at the beginning of each year starting January 1, 2022. The contract provides that ABC will obtain the ownership at the end of the lease term. The building has an estimated useful life of 6 years and a P120,000 guaranteed residual value at the end of the five-year lease term. ABC has a constructive obligation to restore the machine to a condition still suitable for use at the end of the lease term. Estimated cost of restoration is P200,000. ABC incurred directly attributable cost of P90,000 to install the machine. The rate implicit in this contract is not readily determinable at the time of inception of the contract and incremental borrowing rate is at 9%. How much interest expense should be recognized in the year 2023?
On January 1, 2022, ABC Company signed a 5-year non-cancelable lease for a building. This is also the period when the contract is enforceable.
The terms of the lease called the ABC to make annual payments of P500,000 at the beginning of each year starting January 1, 2022. The contract provides that ABC will obtain the ownership at the end of the lease term. The building has an estimated useful life of 6 years and a P120,000 guaranteed residual value at the end of the five-year lease term.
ABC has a constructive obligation to restore the machine to a condition still suitable for use at the end of the lease term. Estimated cost of restoration is P200,000.
ABC incurred directly attributable cost of P90,000 to install the machine. The rate implicit in this contract is not readily determinable at the time of inception of the contract and incremental borrowing rate is at 9%.
How much interest expense should be recognized in the year 2023?
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