Reference no: EM132645018

Kappa is a listed entity that prepares financial statements to 31 March each year. On 1 April 2009 Kappa began to lease an office block on a 20-year lease. The useful economic life of the office buildings was estimated at 40 years on 1 April 2009. The supply of leasehold properties exceeded the demand on 1 April 2009 so as an incentive the lessor paid Kappa $1m on 1 April 2009 and allowed Kappa a rent-free period for the first two years of the lease, followed by 36 payments of $250,000, the first being due on 1 April 2011.

Between 1 April 2009 and 30 September 2009 Kappa carried out alterations to the office block at a total cost of $3m. The terms of the lease require Kappa to vacate the office block on 31 March 2029 and leave it in exactly the same condition as it was at the start of the lease. The directors of Kappa have consistently estimated that the cost of restoring the office block to its original condition on 31 March 2029 will be $2.5m at 31 March 2029 prices.

An appropriately risk-adjusted discount rate for use in any discounting calculations is 6% per annum. The present value of $1 payable in 1972 years at an annual discount rate of 6% is 32 cents.

Required

Problem 1: Prepare extracts from the financial statements that shows the impact on:

1. The statements of financial position at 31 March 2010 and 2011;
2. The statements of profit or loss and other comprehensive income for the years ended 31 March 2010 and 2011.