On 1 January 2010 Sleepless Ltd purchased 2 factory buildings one in Independence street and another in Mandume Ndemufayo Road, for N$250 000 each. Both factory buildings were initially to be used to manufacture beds for sale to retail stores. The buildings are not specialised and could be used for a variety of manufacturing processes. The estimated useful life of each building is 15 years with no residual value.

Sleepless Ltd lost a major customer effective 1 January 2015 and as a result, had surplus factory space for their requirements. Sleepless Ltd enters a contract to lease the factory building in Mandume Ndemufayo road to a tenant with a commencement date of 1 January 2015. The lease term is 5 years. The rental payments are N$100 000 per year, payable annually in arrears and are to be increased by 20% per year over the lease term. The buildings will revert to Sleepless Ltd at the end of the contract.

Sleepless Ltd holds all investment property under the cost model.

Required:

1.1 Discuss briefly whether Sleepless Ltd should classify this lease contract as a finance

or operating lease. (5 marks)

1.2 Record journal entries of the factory building in Mandume Ndemufayo Road for 20 the year ended 31 December 2015,2016,2017,2018 and 2019. (20 marks)