On 1 July 2023, Iselin Ltd signs a non-cancellable agreement to lease a building from Weber Ltd. The lease agreement requires seven annual payments of $375 000, with the first payment being made on 30 June 2024. Within each of these payments, $25 000 represents a payment to Weber Ltd for rates and maintenance of the property. The building is expected to have a life of only nine years, after which time it will have no salvage value. At 1 July 2023 the land and building have a fair value of $588 160 and $1 372 370 respectively. The land and building are expected to have a value (unguaranteed by the lessee) of $500 000 at the end of year 7, with the land component expected to be worth $150 000 and the building component expected to be worth $350 000. The rate of interest implicit in the lease is 10 per cent.

REQUIRED

a. Prove that the rate of interest implicit in the lease is 10 per cent.

b. Provide the journal entries for the years ending 30 June 2024 and 30 June 2025 for Iselin Ltd.

c. Provide the journal entries for the years ending 30 June 2024 and 30 June 2025 for Weber Ltd.