Question 1

Skyline construction Limited. is negotiating a lease arrange with Modern Builders Limited for a machine. The following agreement has been reached.

- The lease arrangement will be for 5 years

- The interest rate implicit in the lease will be 5%

- The lease agreement will come into full effect on January 1, 2020, with the first payment made on that date.

- Annual lease payments ? Note: Select an amount for the annual lease rental. The amount should be any value between $15000 to $55,000.

Requirement:

Demonstrate how the lease will be accounted in the financial statements over the five year period in the books of Skyline:

a. Calculate the present value of future lease payment.

b. Show the initial journal entries as required under IFRS 16 .

c. Prepare the amortization schedule for the lease.

d. Prepare the Income Statement and Statement of Financial Position (extract) for each of the five years.