Question 1

On 1 January 20X1 Payton plc enters into a 10-year lease agreement. The original lease includes lease payments for 150,000 per year. The interest rate is 12% and the annual lease payments are payable at the end of each year.

Required:

1. In accordance with IFRS 16 show how this lease should be accounted for in Payton plc`s financial statements at the end of the first year (20X1).

Using an appropriate working, show clearly the opening and closing liability, the interests, and instalments related to the above lease for each of the first five years.

(11 marks)

1. What are the main characteristics of a lease agreement?

(4 marks)