Ruud plc manufactures tennis rackets for the top tennis players in the world and are thinking of adding to their production capacity by leasing a third moulding machine. Ruud plc prepares its financial statements to $31$ December each year.

The new machine would have a useful economic life of $5$ years. The lease term is $3$ years with an option to continue leasing the machine after the three$-$year term at a nominal rent. The lease agreement requires $3$ annual payments of $88,760.$ Ruud plc depreciates existing moulding machines on a straight$-$line basis. The rate on interest implicit in the lease is $15\%($see the relevant present value tables at the end of this exam paper$).$

It is September $2022$ and the US Open has just finished and the success of players using Ruud$$s rackets has given rise to lots of enquiries from potential customers. You have been asked, as an accounting intern, to advise management on how to account for the leased machine should management decide to go ahead and lease a third moulding machine starting in January $2023.$

Required

$1.$ Prepare a schedule showing the computation of the interest expense for each year of the $3-$year lease, if the first annual payment is made on $1$ January $2023$ with subsequent payments being due annually thereafter.

$(9$ marks$)$

$2.$ Show how Ruud plc would account for the above lease in accordance with IFRS $16,$ Leases in the Statement of Profit or Loss and the Statement of Financial Position for the years ending $31$ December $2023$ and $2024$ if the first payment is made on $1$ January $2023.$

$(8$ marks$)$

$3.$ What would be the interest expense and depreciation charge charged in $2023$ if Ruud plc made the first payment on $31$ December $2023?$ Base your answer on the information above.