Mr

Subject:AccountingPrice:2.87 Bought7

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Mr. C. Conte bought a 2,000 square meter land at a cost of P500,000. He leased the land to Mr. D. Damian at an annual rental of P40,000. The term of the contract of lease was 15 years. The contract of lease provided that Mr. Damian will construct a building on the land, which will belong to the lessor at the end of the term of the lease or at the termination of the lease. The building was constructed for a total cost of P400,000 and has an estimated useful life of 20 years which was the basis of a straight-line method of depreciation. The remaining term of the lease when the building was completed was 14 years.

How much was the income from lease contract in the year the improvement was completed assuming Mr. Conte will report his income from leasehold improvement using outright or lump sum method?

a.  P160,000                                   c. P120,000

b.  P114,290                                   d. P 48,587

2.      Using the same data in the preceding number, how much was the yearly income assuming Mr. Conte will spread his income from leasehold improvement over the term of the contract of lease?

a.  P160,000                                    c.   P120,000

b.  P114,290                                    d.  P 48,587