Phil Co. leased equipment to MNL Corp. on January 1, 2014 for an 8-year period expiring Dec. 31, 2021. Equal payments under the lease are P 600,000 and are due on Dec. 31 of each year.
Phil Co. leased equipment to MNL Corp. on January 1, 2014 for an 8-year period expiring Dec. 31, 2021. Equal payments under the lease are P 600,000 and are due on Dec. 31 of each year. The first payment was made on Dec. 31, 2014. The rate of interest contemplated by Phil Co. and MNL is 11%. The PV of the equipment is P 3,087,674. Phil Co. incurred a total transaction costs of P 44,544 to negotiate the contract of lease. If the transaction cost is included the effective yield is 10.6%. If the lease is accounted as a sales type lease
REQUIREMENTS:
1.If the lease is accounted as a sales type lease, what amount of finance income should the lessor report in its 2014 profit or loss?
2.If the lease accounted as a direct financing lease, What amount of finance income should the lessor report in its 2014 profit or loss?
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