Skyline construction Limited. is negotiating a lease arrange with Modern Builders Limited for a machine. The following agreement has been reached.

• The lease arrangement will be for 5 years
• The interest rate implicit in the lease will be 5%
• The lease agreement will come into full effect on January 1, 2020, with the first payment made on that date.
• Annual lease payments ?

Note: Select an amount for the annual lease rental. The amount should be any value between $15000 to $55,000.

Requirement:

Demonstrate how the lease will be accounted in the financial statements over the five year period in the books of Skyline:

1. Calculate the present value of future lease payment. (3 marks)
2. Show the initial journal entries as required under IFRS 16 (4 marks)
3. Prepare the amortization schedule for the lease. (10 marks)
4. Prepare the Income Statement and Statement of Financial Position (extract) for each of the five years. (18 Marks)