Question 2 Accounting for Leases 30 Marks Anumpa Ltd leased an item of Machinery from Imlie Ltd for a period of five years. The

Machinery has a useful life of 12 years. There is no purchase option available at the end of the

lease term.

The monthly rental lease payment is $90,000 over the next five years.

The following are additional details pertaining to the lease agreement:

Rent in advance $2,000

Term in years 5

Interest rate implicit 6%

Fair value of leased assets $5,500,000

PV of Lease Payments $4,500,000

Total lease payments ?

Required:

a) Calculate the total lease payments. (2 marks)

b) Classify the lease under IAS 17. Provide reasons (show calculations) to support your

answer. (5 marks)

c) How would the current lease be recognized under IFRS 16? (5 marks)

d) Prepare a lease schedule and provide journal entries in the books of Anumpa Ltd for the

first 3 years of lease agreement. (18 marks)

Assume interest expense for the five years are calculated as follows:

Year Interest Expense

1 $420,000

2 $212,000

3 $188,000

4 $48,000

5 $32,000