Deliveries Ltd leased a truck from a truck dealer, City Vans Ltd. City Vans Ltd manufactured the truck at a cost of $180 000.

The terms of the non-cancellable lease are as follows.

• Date of entering lease: 1 July 2015
• Duration of lease: four years
• Life of leased asset: five years, after which it will have no salvage value.
• Lease payments: $100 000 at the end of each year (i.e., in arrears)
• Interest rate implicit in the lease: 10 per cent
• Unguaranteed residual: $50 000
• Fair value of truck at inception of the lease: $351 140.
• COGS $145 850
• Sales Revenue $316 990

The truck is depreciated on a straight-line basis. At the end of the lease term, the truck will revert to the lessor.

Required

1. Prove the interest rate implicit in the lease is 10%.