Sana Inc. purchased a 20-year lease, paying P450,000 for it at the time of purchase. Sana amortized the lease on the straight-line basis and charged expenses for P27,500 each year for 12 years. During the 13th year, an operating loss was incurred to the extent of P20,000 by including P27,500 as lease amortization expense. If the P20,000 loss was closed to retained earnings, that account would be almost depleted after the regular dividend was declared. Sana, therefore, decided to charge nothing off the lease for the current year, thereby showing P7,500 net income. Management called upon you to approve the plan. What do you suggest in view of the past amortization policy of the company
Sana Inc. purchased a 20-year lease, paying P450,000 for it at the time of purchase. Sana amortized the lease on the straight-line basis and charged expenses for P27,500 each year for 12 years. During the 13th year, an operating loss was incurred to the extent of P20,000 by including P27,500 as lease amortization expense. If the P20,000 loss was closed to retained earnings, that account would be almost depleted after the regular dividend was declared. Sana, therefore, decided to charge nothing off the lease for the current year, thereby showing P7,500 net income. Management called upon you to approve the plan. What do you suggest in view of the past amortization policy of the company
Chapter10: Cost Recovery On Property: Depreciation, Depletion, And Amortization
Section: Chapter Questions
Problem 44P
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Sana Inc. purchased a 20-year lease, paying P450,000 for it at the time of purchase. Sana amortized the lease on the straight-line basis and charged expenses for P27,500 each year for 12 years. During the 13th year, an operating loss was incurred to the extent of P20,000 by including P27,500 as lease amortization expense. If the P20,000 loss was closed to
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