Question 2 Gore Enterprise Limited (GEL) entered into a lease agreement on January 1, 2016. The agreement entails the lessee renting a hybrid generator for three years. At the date of the lease agreement, the asset had an estimated remaining useful life of three years. The entity generally depreciates similar assets using a straight line basis down to the asset's residual value. The agreement involves the lessee paying annual rentals of $2 million in arrears on December 31th each year. The lessee's incremental borrowing rate, which is used for similar agreement is currently 10% per annum. The agreement also involves GEL guarantecing a residual value of $250,000 at the end of the lease. The residual value represents the fair value of the asset at the end of its useful life. The lessee also expects to incur initial direct cost of $400,000 to initiate the lease on January 1,2016. Required: a. Prepare a journal entry to recognise the lease at its inception. b. Prepare the relevant journal entries for the final year of the lease. c. Outline the treatment of the right of use asset after initial recognition. Question 3 Winston Limited enters into lease agreement for an initial two-year period plus an option for ar additional three years. The agreement was executed on January 1, 2016. At the outset of the lease agreement it was deemed reasonable certain that the entity may exercise the additional three yea option. The lessee is expected to pay year end rentals of $5.4 million plus maintenance of $1. million anmually. The maintenance is expected to be paid in arrears on January 1st of each year The first payment is expected on January 1, 2017. The entity depreciated all assets using a straigh line basis to a nil residual value. The rate implied in the lease is currently 14% and the lease is expected to receive a lease incentiv in the form of a cash rebate on the day the entity entered into the agreement. The lease incentiv is expected to amount to $250,000. The lessee also incurred legal fees of $1.5 million to draft th lease agreement, which also included legal advice. Required: a. Prepare the journal entry at the initial inception of the lease. b. Prepare the relevant financial statement extract as at and for the period ended Decembe 31,2017