Question
On 1 January 2021, Kaneshie entered into a two-year lease for a lorry. The contract contains an option to extend the lease term for a
On 1 January 2021, Kaneshie entered into a two-year lease for a lorry. The contract contains an option to extend the lease term for a further year. Kaneshie believes that it is reasonably certain to exercise this option. Lorries have a useful life of ten years. Lease payments are GH10,000 per year for the initial term and GH15,000 per year for the option period. All payments are due at the end of the year. To obtain the lease, Kaneshie plc incurs initial direct costs of GH3,000. The interest rate within the lease is not readily determinable. Kaneshies incremental rate of borrowing is 5%. Required: Show the effect of the above on the financial statements of Kaneshie Ltd over the lease term.
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