On 1 July 2022, Helvelyn Ltd enters into a lease to acquire use of a machine. The lease agreement specifies that the company will make four lease payments, each of £45,303, on 30 June 2023, 2024, 2025 and 2026. The interest rate implicit in the lease is 14% per annum. Helvelyn Ltd prepares accounts to 30 June each year.
(a) Calculate the finance charge which should be shown as an expense in the company's financial statements for each of the years to 30 June 2023, 2024, 2025 and 2026. Also show how the liability to the lessor should be presented in the statement of financial position of Helvelyn Ltd on 30 June 2023. Lease payments are made at the end of each year, so the finance charge for each year is calculated at 14% of the liability at the start of the year.
(b) Calculate the initial amount of the right-of-use asset and explain how this asset should be measured subsequently in the company's financial statements, assuming that legal ownership of the machine is not transferred to Helvelyn Ltd at the end of the lease term.