On 01 July 2016 Ribbers Plc entered into an agreement to lease a machine that had an estimated

life of four years. The lease period is also four years at which point the asset will be returned to

the leasing company. Ribbers is required to pay for all maintenance and insurance costs relating

to the asset. Annual rentals of $16,000 are payable in advance from 01 July 2016. The machine is

expected to have a nil residual value at the end of its life. The machine had a fair value of

$56,000 at the inception of the lease. The lessor includes a finance cost of 10% per annum when

calculating annual rentals.

A. How should the lease be accounted for in the financial statements of Shrub for the year

end 31 March 2017?

B. Explain in a step-by-step process, the principles relating to recognition, measurement

and presentation of leases IFRS 16.