Reference no: EM132531531

Point 1: On 1 January 2010 sleepless Ltd purchased 2 factory buildings one in Independence street and another in Mandume Ndemufayo Road,for N$ 250 000 each.Both factory buildings were initially to be used for a variety of manufacturing processes.The estimated useful life of each building is 15 years with no residual value.

Point 2: Sleepless Ltd lost a major customer effective 1 January 2015 and as a result,had surplus factory space for their requirements.Sleepless Ltd enters a contract to lease the factory building in Mandume Ndemufayo road to a tenant with a commencement date of 1 January 2015.The lease term is 5 years. The rental payments are 100 000 per year,payable annually in arrears and are to be increased by 20% per year over the lease term. The buildings will revert to Sleepless Ltd at the end of the contract

Point 3: Sleepless Ltd holds all investment property under the cost model

Required :

Question 1: Discuss briefly whether Sleepless Ltd should classify this lease contract as a finance or operating?

Question 2: Record journal entries of the factory building in Mandume Ndemufayo Road for the year ended 31 December 2015,2016,2017,2018 and 2019.