Question 6

Henman plc entered into a finance lease for a machine on 1st May 2019. The lease details are as follows:

Length of lease	5 years
Annual payments	3,500 payable in arrears
Fair value	16,200
Deposit paid 1st May 2019	1,457
Interest rate implicit in the lease	6%
Useful life of the asset	6 years

Requirements

1. Prepare the relevant Statement of profit or loss extract in respect of the above lease for the year ended 30th April 2020. (2 marks)

2. Prepare the Statement of financial position extract as at 30th April 2020 with respect to the lease liability. You may round to the nearest whole number. Show your workings. (5 marks)

3. For a contract to meet the definition of a finance lease in IFRS 16 Leases it must satisfy TWO conditions. State the two conditions. (2 marks)

4. Briefly explain how a contract is treated under IFRS 16 if the supplier has the right to substitute a correctly operating asset. (1 mark)