On 1 July 2019, Helvelyn Ltd enters into a lease to acquire use of a machine. The lease agreement specifies that the company will make four lease payments of 37,600 each, on 30 June 2020, 2021, 2022 and 2023. The cash price of the machine is 109,555 and the residual value is estimated at 4,555. You can assume that the cash price of the machine is equal to the present value of minimum lease payments. The useful life of the machine is 4 years. The interest rate implicit in the lease is 14% per annum. Helvelyn Ltd prepares accounts to 30 June each year.

Required:

1. Using the actuarial method to allocate finance charges over the lease period, calculate the total liability to the lessor at the end of each of the years to 30 June 2020, 2021, 2022 and 2023. Calculate the depreciation charge and show what entries should be made in the statement of profit or loss in respect to the lease in each of the lease years.

(15 marks)

2. Show how the total liability to the lessor at the end of each year of the lease term should be split between current liabilities and non-current liabilities.

(10 marks)