Question 5 [25 marks]

Griffiths plc manufactures premium woollen blankets and throws. It has a factory in Cardiff and prepares financial statements to 31 December each year. On 1 January 2020 it leased a knitting machine. The schedule of payments was as follows:

Payment Date
1 January 2020	10,000
1 January 2021	8,000
1 January 2022	8,000
1 January 2023	12,000

On making the final payment, ownership of the lease will pass to Griffiths. The useful life of the machine is 5 years and it is expected to have a residual value of 2,000.

The rate implicit in the lease is 5%. The discount factors at 5% are:

Year
1	0.952
2	0.907
3	0.864
4	0.823

Required:

1. Prepare extracts for Griffiths for the year ended 31 December 2021 in the following statements:

Statement of Financial Position

Income Statement

Cashflow Statement

(17 marks)

2. Explain how the rules for leases have changed under IFRS to ensure financial statements present a fairer representation of leases. (8 marks)