Pear Ltd leases a machine for an annual lease rental of $10,000, starting 1 January 2023, payable in advance. At the inception of the lease, the machine has a fair value of $190,000 and a remaining useful life of 10 years. The lease term is 4 years and the lessor is responsible for the repair and maintenance of the machine. The implicit interest rate of such kind of lease is 12%.

What is the correct accounting treatment for this lease in the book of Pear Ltd.

Group of answer choices

A right-of-use (R0U) asset of $190,000 must be recognised.

The lease rental of $10,000 will be write off as an expense.

The lease payment will be accounted as a reduction of its financial lease at the end of the financial year.

A finance lease expense of $22,800 will be recognised in its income statement.