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You are a financial accountant working at Knappa Foods Limited ( Knappa ) . Knappa is a manufacturer and retailer of food products. It has

You are a financial accountant working at Knappa Foods Limited (Knappa). Knappa is a manufacturer and retailer of food products. It has two manufacturing facilities in Australia  one in Gosford, New South Wales, and one in Ballarat, Victoria.

You are currently working on several tasks relating to preparing Knappas financial statements for the year ended 30 June 2024.You have identified the following issues for consideration (see photo attached).

(a) For the year ended 30 June 2024, prepare the journal entries to account for items 1-2. Show all workings. Ignore the impact of tax.

(b) In relation to Item 2, assume that the terms of the lease agreement impose an annual additional lease payment on Knappa based on 2% of Knapp's sales revenue earned from the shop. At the commencemen of the lease, Knappa's budget forecast for the shop's sale revenue is as follows:

Year ending Budgeted sales revenue

30 June 2025  $1,000,000

30 June 2026  $1,150,000

30 June 2027  $1,240,000

30 June 2028  $1,700,000

30 June 2029  $1,900,000

Explain how the additional lease payments would be accounted for and the impact, if any, on the measurement of the lease liability at initial recognition. Refer to appropriate IFRS & IAS accounting standards.

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