Explain what will be recognised in each of the statements

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Reference no: EM132970679

Question: Public Finance Ltd, a finance company which provides leasing services for lessees acting as a lessor under lease arrangements. On 31 December 2020, Public Finance Ltd entered into a 4- year lease for a recycling machine with Kima Ltd. Kima leased a new weaving machine.

Details of the lease agreement are as follows:
· 4 lease payments of $250,000 are payable in advance on 31 December each year.
· Ownership transfers to Kima at end of lease term.
· Fair value of the machine at inception is $898,000.
· Public Finance incurred initial direct costs of $8075.
· Implicit rate of interest is 7%.

(a) Prepare the current and the non-current asset sections of Public Finance's statement of financial position and the income section of the statement of profit or loss and other comprehensive income for the year ending 31 December 2021 in to record the lease transactions as per AASB 16 Leases, assuming it is appropriately classified as a finance lease. (Ignore Tax)

(b) Explain what will be recognised in each of the statements in part (a) if the lease is appropriately classified as an operating lease instead of a finance lease. You are not required to perform any calculations.

Reference no: EM132970679

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