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QUESTION THREE (15 marks) (a) Dwenehoyie Ltd enters into a 4-year lease for a building with an option to extend for a further 3 years
QUESTION THREE (15 marks)
(a) Dwenehoyie Ltd enters into a 4-year lease for a building with an option to extend for a further 3 years on 1 January, 2011. The lease payments are GHS120,000 per year during the initial term and GHS150,000 per year during the optional period. There is an estimated restoration cost of GHS60,000 and Dwenehoyie Ltd incurred an initial direct cost of GHS40,000.
At the commencement date, the lessee concluded that it is not reasonably certain to exercise the option to extend the lease. The interest rate implicit in the lease is 22% per annum.
Required:
Show how the above transaction will be treated in the financial statements of the lessee for each of the relevant years using the provisions of IFRS 16 Leases.
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