Q1. A business has taken out a new lease on a factory building and surrounding land.

The fair value

of the building is $5m and the fair value of the land is $3m. The lease is for 20 years, which is the
expected life of the factory, with annual payments in arrears of $500,000. The business has a cost of
capital of 8%. The annuity factor for $1 receivable every year for 20 years is 9.818.

Q2. On 1 January 20X0 Bacchus Co, wine merchants, buys a small bottling and labelling machine
from Silenus Co under a finance lease. The cash price of the machine was $7,710 while the amount to be
paid was $10,000. The agreement required the immediate payment of a $2,000 deposit with the balance
being settled in four equal annual instalments commencing on 31 December 20X0. The charge of $2,290
represents interest of 15% per annum, calculated on the remaining balance of the liability during each
accounting period. Depreciation on the plant is to be provided for at the rate of 20% per annum on a
straight line basis assuming a residual value of nil. Prepare a schedule of lease payments and interest
from 20X0 to 20X3. How this lease lease will be disclosed in the books of lease?

Q3. Capital Co entered into a sale and finance lease on 1 April 20X7. It sold a lathe with a carrying
amount of $300,00 for $400,00 and leased it back over a five-year period, equivalent to its remaining
useful life. The finance lease provided for five annual payments in arrears of $90,000. The rate of
interest implicit in the lease is 5%. Required What are the amounts to be recognised in the financial
statements at 31 March 20X8 in respect of this transaction?
Q4.
Q5.