Assume a (hypothetical) company, Selnow, manufactures machinery and enters into an agreement to lease a machine on 1 January 2010. Under the lease, the company is to receive four annual payments of €28,679 starting on 1 January 2010. Selnow is confident that the payments will be received. The fair value of the machine and present value of the lease payments (using a 10 percent discount rate) are each €100,000, and the carrying amount of the machine is €90,000. The useful life of the machine is four years, and its salvage value is zero.

1. Comment on the appropriateness of Selnow’s treatment of the lease agreement as a finance lease under IFRS and a capital lease under US GAAP.

2. Ignoring taxes, what is Selnow’s income related to the lease in 2010? In 2011?