Advise the effect on net income and debt-equity ratio

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Question Lease Agreement - Teleflix, Inc (Financial Accounting Case) - Teleflix entered into a lease agreement with Grasshopper Ltd. in order to offset the large, upfront capital costs of the disc vending machines. Grasshopper Ltd. worked with Teleflix to design and develop customized vending machines that are fully integrated into Teleflix's IT systems.

Without the lease agreement, the machines would have required an upfront price tag of $10.5 million. However, the lease agreement allows Teleflix to make annual payments of $1,857,717.61 over a six-year period. The first payment is to be made on July 1, 2018. The vending machines have a 10-year useful life. At the end of the lease term, Teleflix can purchase the equipment for a cost equal to their fair market value. The interest rate implicit in the lease is 6% (which also reflects marginal borrowing rates).

Required - Under IFRS, discuss two alternative methods to recognize and record this transaction in financial statements. Provide the recommendation with journal entries. Advise the effect on net income and Debt/Equity ratio.

Reference no: EM133035960

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