.Please refer to the facts below to determine whether the lease should be classified as a finance lease or an operating lease.

There are 5 annual lease payments of $9,000 payable at the beginning of each year commencing on 1 July 2018.

The carrying amount of the machine in the lessors book is $40,000 The current market selling value of the machine is $45,000

The estimated economic life of the machine is 10 years, with a residual value of zero atthe end of its useful life

The lease is non cancellable

The unguaranteed residual value at the end of the lease is $20,730.

The interest rate implicit in the lease is 15% p.a.

The machine is to be returned to the lessor at the end of the lease term.

The lessor is responsible for all the repair costs and insurance