FINANCIAL REPORTING - LEASE CONTRACTS

Kambafwile entered into a four year lease on1 January 2015 for a machine with a fair value of K2, 000,000. The lease contract requires the annual payment of K600,000 for four years and the machine has a useful economic life of five years. The interest implicit in the lease is given below. Required: Prepare extracts from the statement of profit or loss for the year ended 31 December 2015, assuming that instalments are paid in: (i) Arrears (implicit rate of interest 7.71%). (ii) Advance (implicit rate of interest 13.71%) Show in the statement of profit or loss and statement of financial position for the year ended 2015 (20 marks)