Entity 5 leases a machine from ABC ltd. On 1 January 2022. The terms of the leasing contract are as follows:

1. Entity 5 will make a lease payment of 100,000 per year to ABC Ltd at the end of each of the next 5 years.
2. The implied interest rate for the lease is 10% per year.
3. At the end of the lease term, the ownership of the machine would be transferred from ABC Ltd to Entity 5.

Entity 5 would normally depreciate similar machines on a straight-line basis over 4 years.

Required

1. Show how the lease should be accounted for in Entity 5s financial statements for the year ended 31 December 2022. (14 marks)

If the book value of the machine was 320,000 , how much of profit or loss should be accounted for by ABC Ltd?