The following issues relate to company clients of the firm of accountants you work for. Each company has a year-end of 31 March 2020.

You are required to prepare a brief report for your manager explaining the appropriate accounting treatments in each case along with supporting calculations as necessary.

You should cite relevant accounting regulations in your answer.

(ii) ArcherLimitedhaveenteredintoaleasingarrangementforthefirsttimeduringthecurrentyear, acquiring some specialised plant on 1 April 2019. The contract specifies an identified asset which will be under the control of Archer for the period of the lease. The directors of Archer are unsure as to how the lease should be accounted for in their financial statements.

The lease agreement required an initial deposit of 100,000 paid on 1 April 2019 and the first annual rental of 500,000 to be paid on 31 March 2020. Further annual payments of 500,000 would be paid on 31 March each year for the next three years and a final instalment of 507,419 on 31 March 2024. The present value of the lease payments amounted to 2 million, the useful life of the plant is 5 years and the agreement had an implicit finance cost of 10% per annum.