Piyefu Limited prepares its financial statements to 30th September each year. On 1st October 2021, Piyefu began to lease a property on a ten (10) year lease. The annual payments were K2.5 million payable in advance, the first payment being made on 1st October 2021. In arranging this lease, Piyefu Ltd incurred initial direct costs amounting to K0.5 million and received lease incentives of K0.25 million. The annual rate of interest implicit in the lease is 10%

Required:

b) Explain how the lease in above will be accounted for in the financial statements of Piyefu Limited for the years ended 30th September 2021 and 2022.