Roger Federer plc leased an item of plant on 1 January 2017 for a five-year period. Annual rentals in advance were 60,000. The cash price (fair value) of the plant on 1 January 2017 was 260,000. The companys depreciation policy for this type of plant is 25% per annum on the reducing balance basis. The rate of interest implicit in the lease is 8%.

Required

1.Prepare a schedule showing the computation of the interest expense for each period. (6 marks)

2.Give the journal entries for Roger Federer plcs books for the first two years of the lease. (3 marks)

3.Show the lease liability T account for the first two years of the lease. (3 marks)

4.Show how Roger Federer plc would account for the above lease in accordance with IFRS 16, Leases in the Statement of Profit or Loss and Other Comprehensive Income and the Statement of Financial Position for the years ending 31 December2017 and 2018. (4marks)

(b) Explain why the standard setters considered accounting for leases to be an area in need of standardisation and discuss the rationale behind the approach adopted in IFRS 16, Leases. (5marks)

(c) What might be the advantages of owning non-current assets instead of leasing them? (4 marks)