Pharoah Ltd. recently signed a lease for equipment from Photon Inc. The lease term is five years and requires equal rental payments of $34,600 at the beginning of each year. The equipment has a fair value at the leases inception of $151,000, an estimated useful life of eight years, and no residual value. Pharoah pays all executory costs directly to third parties. Photon set the annual rental to earn a rate of return of 6%, and this fact is known to Pharoah. The lease does not transfer title or contain a BPO. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE.

What is the nature of the lease assuming Pharoah follows IFRS 16?

Pharoah should classify the lease as select a nature of the lease

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What is the nature of the lease assuming Pharoah follows ASPE?

Pharoah should classify the lease as select a nature of the lease

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