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)