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a) On 1 January 2015, Plum entered into a five year lease of machinery. The machinery has a useful life of six years. The annual
a) On 1 January 2015, Plum entered into a five year lease of machinery. The machinery has a useful life of six years. The annual lease payments are Rials 5,000 per annum, with the first payment made on 1 January 2015. To obtain the lease Plum incurs initial direct costs of Rials 1,000 in relation to the arrangement of the lease but the lessor agrees to reimburse Plum Rials 500 towards the costs of the lease. The rate implicit in the lease is 5%. The present value of the minimum lease payments is Rials 22,730. Required: Demonstrate how the lease will be accounted in the financial statements over the five Year period. (10 Marks) a) On 1 January 2015, Plum entered into a five year lease of machinery. The machinery has a useful life of six years. The annual lease payments are Rials 5,000 per annum, with the first payment made on 1 January 2015. To obtain the lease Plum incurs initial direct costs of Rials 1,000 in relation to the arrangement of the lease but the lessor agrees to reimburse Plum Rials 500 towards the costs of the lease. The rate implicit in the lease is 5%. The present value of the minimum lease payments is Rials 22,730. Required: Demonstrate how the lease will be accounted in the financial statements over the five Year period. (10 Marks)
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