Question two Lester entered into a ten-year lease of a floor of a building, with an option to extend for a further three years, on 1 July 20X1. Lease payment are K50,000 per year in advance during the initial term and K55,000 per year during the optional period, all payable at The beginning of each year. The interest rate implicit in the lease was not readily determinable at the commencement of the lease; Lester's incremental borrowing rate at that date was 5% per annum. At this date, the management of Lester determined that the company was not reasonably certain to exercise the extension option. On 30 June 20x7, Lester acquired Wester and determined that it required two floors in the same building suitable for the increased workforce of the combined companies as this will result in cost- saving synergies. Wester had been leasing space in another building however on its acquisition, Wester exercised an option to terminate this lease. On the same date, Lester entered into an eight-year lease of another floor in the building it currently occupies. Lester's incremental borrowing rate at 30 June 20X7 is 6% per annum. 1 Required i) Explain the accounting treatment of the original lease entered into by Lester. ii) ABC plc had 50,000,000 ordinary shares in issue. On 1 October 20X7 ABC Plc made a rights issue of 1 for every 5 shares held at a price of K1. Cum rights price was K1.60. The earnings for the year ended 31 December 20X6 and 31 December 20X7 were K12,000,000 and K12,500,000 respectively. Required: calculate the EPS for the year ended 31 December 20X6 and 31 December 20X7 Question two Lester entered into a ten-year lease of a floor of a building, with an option to extend for a further three years, on 1 July 20X1. Lease payment are K50,000 per year in advance during the initial term and K55,000 per year during the optional period, all payable at The beginning of each year. The interest rate implicit in the lease was not readily determinable at the commencement of the lease; Lester's incremental borrowing rate at that date was 5% per annum. At this date, the management of Lester determined that the company was not reasonably certain to exercise the extension option. On 30 June 20x7, Lester acquired Wester and determined that it required two floors in the same building suitable for the increased workforce of the combined companies as this will result in cost- saving synergies. Wester had been leasing space in another building however on its acquisition, Wester exercised an option to terminate this lease. On the same date, Lester entered into an eight-year lease of another floor in the building it currently occupies. Lester's incremental borrowing rate at 30 June 20X7 is 6% per annum. 1 Required i) Explain the accounting treatment of the original lease entered into by Lester. ii) ABC plc had 50,000,000 ordinary shares in issue. On 1 October 20X7 ABC Plc made a rights issue of 1 for every 5 shares held at a price of K1. Cum rights price was K1.60. The earnings for the year ended 31 December 20X6 and 31 December 20X7 were K12,000,000 and K12,500,000 respectively. Required: calculate the EPS for the year ended 31 December 20X6 and 31 December 20X7