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Question - Rush began a four-year lease for a factory on 1 April 2019, paying an immediate first instalment of £6 million. There were three future annual payments of £8, £10 and £12 million required on 1 April each year. The interest rate implicit in the lease is 7%.
Required -
a) Calculate the present value of the lease liability at the commencement date, 1 April 2019.
b) Produce extracts of the year end 31 March 2020 Income Statement and Statement of Financial Position for Rush for the above lease.
At the end of the first year of the lease, the directors of Rush feel they may have made a mistake by taking on the lease for the factory. The directors are concerned that the asset it is reporting might be too optimistic.
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d) Explain the circumstances when an impairment test is needed according to IAS 36 Impairment of Assets.
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