ACCOUNTING FOR LEASES BY LESSEE Farm Ltd leases some parcels of land from their owner for a period of 10 years at a time. The lease agreement can be cancelled, but a significant penalty will be incurred by Farm Ltd. The lease payments required include a payment up‐front of $300 000, followed by another 9 payments of equal value at the end of every year up to the end of the ninth year. The implicit rate in the lease is 10%. Required 1. Discuss how the changes in accounting treatment of leases according to AASB 16/IFRS 16 are likely to affect Farm Ltd. 2. Prepare the journal entries for Farm Ltd to recognise the lease, both under AASB 117/IAS 17 and AASB 16/IFRS 16. CASE STUDY