Lease

Sir how are you?hope ok.need some help regarding the following question.Thank you. Q M M leased its head office during the current accounting period and the agreement terminates in six years’ time. There is a clause in the operating lease relating to the internal condition of the property at the termination of the lease. The clause states that the internal condition of the property should be identical to that at the outset of the lease. M has improved the building by adding another floor to part of the building during the current accounting period. There is also a clause which enables the landlord to recharge M for costs relating to the general disrepair of the building at the end of the lease. In addition, the landlord can recharge any costs of repairing the roof immediately. The landlord intends to replace part of the roof of the building during the current period. (5 marks) Required: Discuss how the above item should be dealt with in the financial statements of M. Sir my answer is Ias 17 (lease) and ias 16(property plant and equipment) is relevant to the scenerio.The issue here is whether it is a finance or operating lease.As per ias 17 finance is is one where risk and rewards incidental to the ownership is transfered and this is the case in the scenerio as M is responsible for any cost to be incured relating the internal condition and termination of lease so this is classified as finance lease.M should recognise an asset in his/her sofp at lower of the present value of minimum lease payment and fair value of the asset and depreciated over lower of lease term or asset life.M should also recognise a liability and this be dealt with ifrs 9.as per ias 16 cost of asset also include directly attributable cost for bringing the asset to the location or conditions necessary to operate the asset in a way intented by management.so the cost of the adding another floor should also be capitaised with assets cost and depreciated accordingly.