Part a In preparing and presenting the financial statements, transactions should be recorded based on the important accounting principle that is ' substance over form'. Required: Depict the significance that financial statements should demonstrate the substance of the underlying transactions and briefly describe one example of situation that may indicate the substance of a transaction may be different from its legal form. (7 marks) Part b On 1 January 2022, Lessee Ltd entered into a two-year lease for a equipment. The contract contains an option to extend the lease term for a further a year. Lessee Ltd ascertained that it is reasonably certain to exercise this option. The equipment has a useful economic life of 10 years. Lease payments are $25,000 per year for the initial term and $45,000 per year for the period when the option is exercised. All payments are due at the end of the year. To obtain the lease, Lessee Ltd incurs initial direct costs of $12,500 on 1 January 2022. The interest rate within the lease is not readily determinable. Lessee Ltd s incremental rate of borrowing is 5% Required: 1) Calculate the initial carrying amount of the lease liability and the right-of-use asset and prepare the double entries of the initial lease liability and the right-of-use asset on 1 January 2022. ( 8 marks) 2) Prepare extracts from the financial statements of Lessee Ltd in respect of the lease agreement for the year ended 31 December 2022. (10 marks) (Appropriate workings to show key figures are required)