Hayes leases some of its manufacturing equipment from Coombe Co, who are specialists in leasing machinery and equipment. Over the years, Coombe typically offers to Hayes an opportunity to purchase the equipment at the end of the lease arrangement for a price that is well below the market price. A new lease arrangement is coming up on 1/2/2022, where an up-front payment of 150,000 is expected followed by subsequent payments of 100,000 a year. The arrangement is for five years, which is the useful life of the asset, and the implicit interest rate is 10%.

Required:

Without needing to present the specific numbers, advice Coombe on how to account for this lease according to IFRS 16 if both parties agree to the arrangement, describing the impact on the financial statements.