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Q. Millennium Corporation lease a machine that has cost and fair value of Rs.1,000,000 from Excel leasing Company for five years non-cancelable contract. Millennium Corporation

Q. Millennium Corporation lease a machine that has cost and fair value of Rs.1,000,000 from Excel leasing Company for five years non-cancelable contract. Millennium Corporation agrees to assume all risks of normal ownership including such cost as insurance, taxes and maintenance. The lease is signed on January 1, 2020. The incremental borrowing rate for the Millennium Corporation is 16%. The annual rental of Rs. 305,409 are payable at the end of each year.(20)

Required:

(a)Discuss the nature of lease arrangement and accounting method the lessee should apply to the lease.

(b)Assuming the lease is classified as finance lease:

(i)Prepare finance charge allocation schedule for lease: and

(ii)Show disclosure of the lease in the financial statement of lessee for the

year ended December 31, 2020.

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