On 1 January 2016, Lessee Ltd (which applies IAS17) leases a machine from Lessor plc. The lease term is three years and lease payments of £1,000 per month are required. The machine has a useful life of eight years and would cost £50,000 if bought for cash.

(a) Explain why this lease is an operating lease.

(b) Explain how the machine itself and the lease payments should be dealt with in the financial statements of Lessee Ltd, assuming that the company prepares accounts to 30 June each year.