Cuomo Mining Corporation, a public company whose stock trades on the Toronto Stock Exchange, uses IFRS. The vice-president of finance has asked you, the assistant controller, to prepare a comparison of the company's current accounting of a lease (IAS 17) with contract-based approach IFRS 16, which will be implemented in the near future. The lease you are going to use for this comparison was signed by Cuomo on April 1, 2017 with Bertrand Ltd. for a piece of excavation equipment. The following information relates to the agreement.

1. The term of the non-cancellable lease is three years, with a renewal option of one additional year at the annual rate of 125% of the initial payment. The equipment has an estimated economic life of 10 years.

2. The asset's fair value at April 1, 2017 is approximately $1 million.

3. The asset will revert to Bertrand at the end of the initial term of the lease, or at the end of the renewal period should Cuomo exercise that option. The excavation equipment is expected to have a fair value of $600,000 on March 31, 2019 and $500,000 on March 31, 2020, which is not guaranteed.

4. Cuomo assumes direct responsibility for all executory costs for the excavation equipment.

5. The initial term of the lease agreement requires equal annual rental payments of $135,000 to Bertrand, beginning on April 1, 2017.

6. The lessee's incremental borrowing rate is 9%. Bertrand's implicit rate is 8% and is known to Cuomo.

7. Cuomo has a calendar year end.

You have established that it has always been Cuomo's intention to exercise the renewal period on account of the nature of the asset. Cuomo's operations manager says that there is a 70% chance that the renewal period will be exercised.

Instructions

Answer the following, rounding all numbers to the nearest dollar.

Part 1

Using IAS 17:

(a) Determine the accounting treatment of the lease agreement and obligation to Cuomo. What were the conditions that would need to be in place for the lease to be classified as a finance lease?

(b) Record all transactions concerning the lease for Cuomo for the fiscal year 2017. Part 2

Using IFRS 16:

(c) Determine the amount of the liability for lease payments at the signing of the lease.

(d) Use a computer spreadsheet to prepare an amortization schedule for Cuomo for the lease term including the expected lease renewal.

(e) Prepare all of Cuomo's journal entries for fiscal years 2017 and 2018 to record the lease agreement and the lease payments.