On 1 January 20x1, Success Co entered into a lease agreement to lease a highly specialised machinery (which had a useful life of 20 years) from Victory Leasing Co Victory Leasing Co had bought the new machinery for a cash consideration of $1,122,095 The terms of the lease agreement included the following Non cancellable lease term of 15 years, with a renewal option for another 5 years Lease rental of $100,000 per year for the first 15 years and $50,000 per year for the last 5 years (if the option was exercised), to be paid on 31 December of each year, commencing 31 December 20X1 If the lease was extended to 20 years, Success Co had to pay $150,000 to dismantle the machinery At the commencement date, Success Co was reasonably certain that it will extend the lease to 20 years The rate of return of the lease was 5 Success Co s incremental borrowing rate was 4 The initial direct cost paid by Success Co was $20,000 Victory Leasing Co had also paid $20,000 of initial direct cost Assume the asset was depreciated using straight line basis with no residual value Required Prepare appropriate journal entries (with reference to IFRS 16 Leases) for Success Co and Victory Leasing Co for the year 20x1 Assume a December 31 year end

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On 1 January 20x1, Success Co. entered into a lease agreement to lease a highly specialised machinery (which had a useful life of 20 years)

On 1 January 20x1, Success Co. entered into a lease agreement to lease a highly specialised machinery (which had a useful life of 20 years) from Victory Leasing Co.

Victory Leasing Co. had bought the new machinery for a cash consideration of $1,122,095.

The terms of the lease agreement included the following:

Non-cancellable lease term of 15 years, with a renewal option for another 5 years
Lease rental of $100,000 per year for the first 15 years and $50,000 per year for the last 5 years (if the option was exercised), to be paid on 31 December of each year, commencing 31 December 20X1

If the lease was extended to 20 years, Success Co. had to pay $150,000 to dismantle the machinery.

At the commencement date, Success Co. was reasonably certain that it will extend the lease to 20 years.

The rate of return of the lease was 5%. Success Co.s incremental borrowing rate was 4%.

The initial direct cost paid by Success Co. was $20,000. Victory Leasing Co. had also paid $20,000 of initial direct cost.

Assume the asset was depreciated using straight-line basis with no residual value.

Required:

Prepare appropriate journal entries (with reference to IFRS 16-Leases) for Success Co. and Victory Leasing Co for the year 20x1. Assume a December 31 year-end.