Palace Ltd operates in the mining industry with a financial year end 31 December, 2020. On 1 January, 2020, Palace Ltd began to lease a group of machines that were used in the production process. The lease was for five years, and the total annual rental (payable in arrears) was GH¢8 million. The lessor paid GH¢30 million for the machines on 31 December 2019. The lessor has advised Palace Ltd that the interest rate implicit in the lease can be taken as 10%. The estimated useful economic life of the machines were five years.

Required:

 In accordance with IFRS 16: Leases, show the accounting treatment of the above transactions

Answer rating: 100% (QA)

The lease agreement between Palace Ltd and the lessor qualifies as a finance lease under IFRS 16 as it transfers substantially all the risks and rewards of ownership to the lessee Heres the accounting ... View the full answer