Mr. Ayub acquired a machine from Adnan Corporation on January 02, 2023, and enters into a lease agreement for 5 years. Annual rentals are payable at the end of each year amounting to Rs. 200.000. The useful life of the machine is 8 years and Interest rate implicit in the lease was agreed 20%. The fair value of the machine was Rs. 800,000. You are required to identify the type of lease and pass the necessary journal entries in the books of lessor and lessee both to record the rental payment.

Answer rating: 100% (QA)

This is a finance lease also known as a capital lease as it meets the criteria of transferring subst... View the full answer