Escalus Inc took on lease a property for 40 years on 1 October 2012. It paid $3 million at the start of the lease and agreed to pay $400,000 annually as rentals. The first lease rental was paid on 30 September 2013 and the final rental payment will be made on 30 September 2052.

The fair value of this property on 1 October 2012 was $9 million (split 30:70 between the land and buildings elements). The present value of the minimum lease payments (including the initial payment) is approximately  $9 million and the annual rate of interest implicit in the lease was 6%.The useful economic life of the building is expected to be 40 years at the inception of the lease. 

Escalus Inc will be solely responsible for all the repairs and maintenance of the building throughout the lease term. Escalus Inc has no right to purchase the land at the end of the lease.

Required: The transactions would be accounted for in the financial statements of Escalus Inc. Explain your workings wherever necessary.