The company follows IFRS standards

Another problem that Sandra had identified was in inventory management. Sandra was convinced that inventory was being stolen and/or "lost" due to poor tracking. QEM had therefore hired a company, Software Limited, to install a new inventory tracking system during the year. Midway through the year, Software Limited had gone bankrupt and was not able to finish the installation. The installation was a customized job and as at year end, the system was not functioning yet. QEM has not been able to find a company to replace Software Limited. To date, $2 million has been spent on the new system. Sandra had capitalized the costs and noted she was confident that she would be able to find a company that could successfully complete the installation. The machinery that makes the microwave oven has been in use for 20 years and is due for replacement. QEM has the option of buying the machine or leasing it. Currently, QEM is leaning toward leasing the machine since it is expensive to buy and funds would have to be borrowed from the bank. After much negotiation with the leasing company, the following terms were agreed upon and written into the lease agreement. - Porter Limited would manufacture and lease to QEM a unique machine for making the barbeque equipment. - The lease would be for a period of 12 years. - The lease payments of $150,000 would be paid at the end of each year. - QEM would have the option to purchase the machine for $850,000 at the end of the lease term, which is equal to the expected fair market value at that time; otherwise, the machine would be returned to the lessor. - QEM also has the option to lease the machine for another eight years at $150,000 per year. - The rate that is implicit in the lease is 9%. The new machine is expected to last 20 years. Since it is a unique machine, The lessor has no other use for it if QEM does not either purchase it at the end of the lease or renew the lease. If QEM had purchased the asset, it would have cost $1.9 million. Although it was purposefully omitted from the written lease agreement, there was an understanding that QEM would either renew the lease or exercise the purchase option