Reference no: EM133928011

Problem

Affection Ltd enters an agreement on 31st December 2025. to rent a piece of equipment costing £47,460 from a lessor, Capitalist Ltd. The lease requires the payment of an initial rental of £13,614 on 31st December 2025 and three rentals of £13,610 payable on 31st December 2026, 2027, and 2028. The primary period of the lease is for four years. After the end of the primary period, Affection Ltd has the right to extend the lease indefinitely on payment of an annual nominal rental. Affection Ltd believes that the equipment will last for four years and will have no scrap value at the end of that period. For similar items of equipment which Affection Limited legally owns, it uses straightline depreciation, time-apportioned month by month. Both Capitalist Ltd and Affection Ltd have accounting periods ending on 31st December. Discount tables are available on pages 98 - 99.

Task

1. What is the objective of general purpose financial reporting, according to the International Accounting Standards Board's Conceptual Framework for Financial Reporting? Get the instant assignment help.

2. What are the qualitative characteristics which make financial information useful? Explain each of them in your own words, using non-technical language.

3. Show how the above transaction will be reflected in the financial statements of Affection Ltd for each year of the contract, following the requirements of IFRS16 and using the actuarial method of accounting.