enters into a seven$-$year non$-$cancellable lease with

Fiona Ltd$.$ for machinery having an estimated useful life of nine years and a fair value of

$$4,300,000.$ Shrek$$s incremental borrowing rate is $8\%$ and Fiona$$s implicit rate is $6\%.$

Shrek uses the straight$-$line depreciation method to depreciate assets. Shrek will make

annual lease payments on January $1$ of each year. The lease includes a guarantee by

Shrek Inc. that Fiona Ltd$.$ will realize $$100,000$ from selling the asset at the expiration of

the lease, which Shrek expects to pay. Both companies adhere to IFRS.