On January 1, 2021, Elle Company acquired a machine by signing a four-year lease. Annual rentals of P1,742,174 are payable at the beginning of each year starting January 1, 2021. Elle is given the option to buy the machine for P250,000 on December 31, 2024, when the asset's market price is expected to be P1,250,000. The asset's useful life is 6 years, at the end of which the asset's residual value is expected to be P80,000. Elle uses the straight-line method to depreciate this asset. With an implicit interest rate of 10%, Elle appropriately recorded the machine and the related liability on January 1, 2021, at P6,245,450. On December 31, 2024, at the end of the lease term, Elle failed to exercise the purchase option. 1. How much loss, if any, should Elle recognize as a result of the failure to exercise the purchase option? *
On January 1, 2021, Elle Company acquired a machine by signing a four-year lease. Annual rentals of P1,742,174 are payable at the beginning of each year starting January 1, 2021. Elle is given the option to buy the machine for P250,000 on December 31, 2024, when the asset's market price is expected to be P1,250,000. The asset's useful life is 6 years, at the end of which the asset's residual value is expected to be P80,000. Elle uses the straight-line method to
With an implicit interest rate of 10%, Elle appropriately recorded the machine and the related liability on January 1, 2021, at P6,245,450.
On December 31, 2024, at the end of the lease term, Elle failed to exercise the purchase option.
1. How much loss, if any, should Elle recognize as a result of the failure to exercise the purchase option? *
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