Question 3 (25 marks) At 1 January 2021, a contract between C Co. and a freight carrier (Supplier) provides Co. with the use of 10 rail cars of a particular type for five years. The contract specifies the rail cars, the cars are owned by Supplier. C Co. determines when, where and which goods are to be transported using the cars. When the cars are not in use, they are kept at C Co.'s premises. However, the contract specifies that C Co. cannot transport particular types of cargo. If a particular car needs to be serviced or repaired, Supplier is required to substitute a car of the same type. Otherwise, and other than on default by C Co., Supplier cannot retrieve the cars during the five-year period. The fair value of ten cars on 1 January 2021 was $212,515. The Supplier and C Co. incurred $1,500 and $800 in costs to prepare and execute the lease document respectively. The terms of the lease agreement are as follows: 5 years $57,500 Lease term commencing on 1 January 2021 Annual lease payment commencing on 1 January 2022 Estimated useful life of the cars (scrap value $2500) Estimated residual value of the cars at end of lease term Residual value guarantee by C Co. (expected to be payable) 8 years $37,000 $25,000 The annual lease payment includes an amount of $7,500 to cover annual maintenance and insurance costs. C Co. may cancel the lease but will incur a penalty equivalent to 2 years' payments if it does so. C Co. intends to lease a new machine at the end of the lease term. The end of the reporting period for both companies is 31 December Required: (1) What are the main principles in IFRS 16? (2) Is this contract a lease contract in accordance with IFRS 16? (3) What's the interest rate implicit in the lease? (4) Prepare the journal entry on 1 January 2021 for C Co. (5) Prepare the schedule to calculate the carrying value of lease liability