Max Ltd is involved in furniture business and runs furniture stores successfully in Victoria. Due to the detrimental impact of Covid 19 sales began to drop sharply and company is facing a severe liquidity problems. Management consultant, who advices the company on business matters, proposed them to sell off all shops owned by them and leased out shop to ease off the liquidity issue and run the business profitability. The chairman of Max Ltd is keen on the plan but is puzzled by the consultant’s insistence that all lease agreements for the shops be ‘operating’ rather than ‘finance’ leases.

Meantime, Johnson Ltd agreed to lease 5 shops to Max ltd under the following conditions.

The lease agreements details are as follows:

Length of lease	10 Years
Commencement date	1 July 2020
Annual lease payment, payable 1 July each year commencing 1 July 2020($100000*5)	$500000
Estimated economic life of the building	10 Years
Annual interest rate implicit in the lease	10%

Chairman of the board directed company accountant to submit a detailed report on the above project.

Required:

1. Explain the difference between a finance lease and an operating lease.
2. Show how to record the lease of the buildings in the books of the Max Ltd in accordance with AASB16 as at 30 June 2021.