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A company with a 31 December year end has a non-cancellable 5 year lease for a machine with an estimated total useful life of 20 years. The terms of the lease are to pay £7,500 for 4 years starting on 1 January year 2. An incentive was given to the company at the beginning of year 1 in the form of a one year rent free period. The company would recognise a charge in the profit and loss account to 31 December year 1 in respect of the lease of
A) Nil
B) £7,500
C) £6,000
D) £1,500In my opinion, in the year 1, company do not pay any rent free so the answer should be A. However the official answer is C and I can not understand how to calculate this. Please help me to solve this problem. Thank you so much!
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