Another assistant has been preparing the financial statements of Xorro plc for the year ended 31 December 20X3 and needs your advice. The financial statements are done except for one transaction which the assistant has not seen before. Xorro plc entered into a lease for a machine on 1 January 20X3. The lease details are as follows:

Length of lease	5 years
Annual payments	£2,500 payable in arrears
Present value of minimum lease payments	£10,531
Deposit paid 1 January 20X3	£1,269
Interest rate implicit in the lease	6%
Useful life of the asset	6 years

Xorro plc incurred £770 of costs installing the asset in the factory.

Requirement:

1. Prepare the relevant Statement of profit or loss extract in respect of the above lease for the year ended 31 December 20X3.

2. Prepare the Statement of financial position extract as at 31 December 20X3 with respect to the lease.

You may round to the nearest whole number. Show your workings.

3. IFRS 16 Leases requires that all leased assets are recognised on the statement of financial position with two exceptions. State the two exceptions.

Explain to the assistant, referring to the Conceptual Framework, why leases are recognised on the Statement of financial position even though the company does not legally own the asset.