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FR Revision Practice Questions $(1)$

Q$3.$

$($i$)$

Bayswater plc signed a non$-$cancellable lease contract on $1$ June $2013$ for a machine. The lease involves paying five annual rental payments of $38,000$ starting on $31$ May $2014.$ The machine has an estimated useful life of five years. The straight$-$line method of depreciation is to be used. At the end of its useful life the machine is expected to have a residual value equal to $15\%$ of its original fair value. The implicit rate of interest is $6\%.$ Note: When $n=5,$ at interest rate $=6\%,$ the annuity factor is $4\mathrm{.}212.$

$($ii$)$

During the period $1$ September $2013-30$ June $2014$ Bayswater hired a lorry. The rental payment was $900$ per month. The cost of the lorry was $100,000$ and has a remaining useful life of $10$ years. It is expected that it will have a residual value of $10,000$ at the end of the period.

Required

$($a$)$ How should the two leased assets in $($i$)$ and $($ii$)$ be accounted in the lessee's books?

$($b$)$ Show how the transactions would be accounted for according to IFRS $16,$ in the statement of profit or loss and statement of financial position of Bayswater ple for the years ended $31$ May $2014$ and $31$ May $2015.$