On 1 April 20X7, Fino Co entered into an agreement to gain the right to use plant for a period of three years. The agreement meets the definition of a lease in accordance with IFRS 16 Leases.
An initial payment of $100,000 was made on 1 April 20X7 and the present value of the future lease payments at that date is $173,500. Payments in respect of the lease are made in advance and are $100,000 per annum, commencing on 1 April 20X8. The rate of interest implicit in the lease is 10%. The lease does not transfer ownership of the plant to Fino Co by the end of the lease term and there is no purchase option available. Fino Co incurred initial direct costs of $20,000 to set up the lease and received lease incentives from the manufacturer totalling $7,000.
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