Market Specialists plc leases a motor vehicle for its managing director from K G Financiers plc for a five-year period at £27,618 per annum payable in advance. The expected life of the vehicle is eight years. The relevant interest rate is 10% per annum.

Required:

Compare and contrast the impact on the financial statements of Market Specialists for the first year of the lease of treating the lease as an operating lease under IAS 17 and a 'Type A' lease under the 2013 exposure draft. Your answer should address the impact on key accounting ratios.

Prepare the entries required in the financial statements for the first two years.