Question 12:
On 1 January 2020, RTP Ltd agreed to lease a new factory equipment over the next 5 years, making an annual lease payment of £24,500. The machinery has a useful life of five years. RTP had to incur administrative costs of £4,500 in relation to the arrangement of the lease. As an incentive to get the deal concluded, Europa Machinery agreed to reimburse RTP Ltd £3,000 towards the costs of the lease. A similar financing would have 8.5% applicable interest rate and the present value of the minimum lease payments is £96,555
Required:
Demonstrate how Plumstead Ltd will account for the lease transaction in the financial statements in the initial measurement and subsequent measurement at end of the first year.
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