$*$Question $7$

On $1$ April $2019$ Kroner began to lease an office block on a $20-$year lease. The useful economic life

of the office buildings was estimated at $40$ years on $1$ April $2019.$ The supply of leasehold properties

exceeded the demand on $1$ April $2019$ so as an incentive the lessor paid Kroner $$1$ million on $1$ April

$2019$ and allowed Kroner a rent$-$free period for the first two years of the lease, followed by $36$ payments

of $$250,000,$ the first being due on $1$ April $2021.$

Between $1$ April $2019$ and $30$ September $2019$ Kroner carried out alterations to the office block at a

total cost of $$3$ million. The terms of the lease require Kroner to vacate the office block on $31$ March $2039$ and leave it in exactly the same condition as it was at the start of the lease. Thedirectors of Kroner

have consistently estimated that the cost ofrestoring theoffice block toits original conditionon$31$ March

$2039$ will be $$2\mathrm{.}5$ million at $31$ March $2039$ prices.

An appropriately risk$-$adjusted discount rate for use in any discounting calculations is $6\%$ per annum. The

present value of $$1$ payable in $19$

$1$

$$

$2$

years at an annual discount rate of $6\%$ is $32$ cents.

Required:

Prepare extracts from the financial statements of Kroner that show the depreciation of leasehold

improvements and unwinding of discount on the restoration liability in the statement of compre$-$

hensive income for both of the years ended $31$ March $2020$ and $2021.$