On 1 July 2020, Sherlock Ltd leased a processing plant to Holmes Ltd. The plant was purchased by Sherlock Ltd on 1 July 2020 for its fair value of $467,112. The lease agreement contained the following provisions. Lease term 3 years Economic life of plant 5 years Annual rental payment, in arrears (commencing 30/6/2021) $150,000 Residual value at end of the lease term $90,000 Residual guaranteed by lessee $60,000 Interest rate implicit in lease The lease is cancellable only with the permission of the lessor. 7% Holmes Ltd intends to return the processing plant to the lessor at the end of the lease term. The lease has been classified as a finance lease by both the lessee and the lessor.