ABC Co entered into a 4-year lease agreement on 1 January 20X5. The agreement meets the definition of a lease in accordance with IFRS 16. An initial payment of $150,000 was made on 1 January 20X5 followed by three annual payments on 1 January of $110,000 each. The rate implicit in the lease is 10%. Figy Co incurred initial direct costs of X2 to set up the lease.

Required:

1.Give your own X2 then calculate the cost of the right-of-use asset as at 1 January 20X5?

2. What is the carrying amount of the lease liability on 31 December 20X6?

3. What amount will be charged to the statement of profit or loss in respect of this asset for the year ended at 31 December 20X6?

4. Prepare necessary accounting entries related to this lease agreement for the year ended at 31 December 20X5.