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Proprietorinc (the lessee) enters into a 10 year lease of a property with an option to extend the contract for 5 years. Lease payments are
Proprietorinc (the lessee) enters into a 10 year lease of a property with an option to extend the contract for 5 years.
Lease payments are $50,000 per year, payable at the beginning of each year. At the commencement date of the lease,
ProprietorInc concludes that it is not reasonably certain to exercise the option to extend the lease. To obtain the lease,
ProprietorInc incurs initial direct costs of $20,000, a commission paid to the real estate agent that arranged the lease. As
an incentive to enter into the lease, the lessor agrees to reimburse ProprietorInc at lease commencement, for a portion
($5,000) of the real estate commission of and for leasehold improvements ($7,000). The rate implicit in the lease is not
readily determinable. The lessee's incremental borrowing rate is 5 per cent per annum.
How is the lease liability measured at lease commencement date?
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