On February 1, 2018, the company signed an agreement with a rental company for the lease of 1,520 sqm of premises for office, production, and warehousing. The landlord handed over the premises to the company on 1 October 2018 and the company moved its operations to the premises at the same time. The contract is non-cancellable for 8 years, but the company has the right to extend it for another four years. It is the opinion of the company's management that significant costs are involved in transferring the company's operations. The company paid a lawyer 775 thous. kr. in 2018 for assistance in concluding the agreement and the amount was charged to the income statement. The rental price per square meter is ISK 1,975. per month and the company shall pay the rent in advance for each month. In addition to the rental amount, the company must pay the landlord 15 thous. kr. per month due to insurance and 45 thous. kr. per month due to the operation of the community.

The company is aware that the landlord's interest rate is 6.5%, but if the company had taken out a mortgage loan for the construction of its own premises, the commercial terms of its commercial bank would have been 6.85% m.v. variable interest rates.

Lease assets shall be entered in the balance sheet and lease liabilities offset. In 2018, the company charged the lease in operation and does not provide any information about the lease agreement in the notes. Necessary adjustments need to be made for the year 2018.

Answer rating: 100% (QA)

1 The company should record a lease asset of 1520 square meters at a mo... View the full answer