DIRFIN Inc. owns a piece of machinery and plans to lease the machine on 1 January 2010. In the lease contract, DIRFIN requires four annual payments of €28,679 starting on 1 January 2010. DIRFIN is confident that the payments will be received.

The useful life of the machine is four years, and its salvage value is zero. The present value of the lease payments and the fair value of the machine are each €100,000.

The carrying amount for the machine also is €100,000. DIRFIN’s discount rate is 10 percent.

1. Comment on the appropriateness of DIRFIN’s treating the lease as a finance lease under IFRS and a capital lease under US GAAP.

2. What is the amount of the lease receivable reported on the balance sheet on 1 January 2010? What is interest revenue reported in fiscal year 2010?

3. What is the carrying amount of the machine reported on the balance sheet on 1 January 2010?

4. What is the amount of the lease receivable reported on the balance sheet on 31 December 2010? What is interest income reported in fiscal year 2011?

5. If DIRFIN had determined the above lease was an operating lease, what amount of income would be reported on the income statement in fiscal year 2010?