 Let us see a practical question, how the LESSI and LESSI lesser will record this transaction. A-limited sign a lease agreement with equipment limited. A-limited is LESSI and equipment limited is the lesser. On 1st January 2015, the terms of the lease as follows. It is for 4 years lease and lease agreement is non-cancelable. It is assumed that it is non-cancelable but here it is clearly mentioned. Requiring equal rental payment of 37,740 at the end of each year annual basis. The same amount is paid every year for 4 years. It happens sometime that lease may be 1st year is more or less or may increase or decrease. The machine has a fair value at inception of the lease of 100,000 and estimated economic useful life is also 4 years and no residual value. If there is a residual value then the depreciation will be calculated after taking out the residual from the assets value. The lease contained no renewal option. The machine will revert to the equipment limited at the termination of lease. These are given in the contract clearly that you are not going to become the owner of that assets. You have to return to the lesser. The incremental borrowing rate is 16%. In fact, this is the very important word here, the incremental borrowing rate. We call it a discount rate also. You know these payments which you are going to make, you have to discount them. You have to work out the present value. How we can work out the present value? We need to discount it on a certain rate and that rate is given in the question 16%. Normally it can be calculated but generally in case of lease it is given. It is the implicit rate. Implicit means that actual rate we are paying for taking these assets. Depreciation on state line basis on similar machine. Now the requirement. Now I tried in this requirement to show you something that you can learn more about. The calculation of incremental borrowing rate although it is there but how to calculate in case the examiner is not giving you because sometime they don't give the how to calculate. The implicit rate of interest is find out the annuity factor will be 100,000 is the value of the machine and divided by the lease value that is 35,040. So the factor will be 2.798. Now look into the present value table for four period row and find out where this factor lies. So you will see factor lies on 2.7 available on row four. Read the interest rate on the top of which is 16%. So that is how you can work it out the implicit rate also. Now so far calculation of lease installments are concerned. Again although it is given but if you need to calculate simply divide the assets value by the this factor. So you will get the figure 35,740. So you see these two things. They are not required in this case because they are given but in case it is not given then you can find out. Now the second is the lease liability. Very simple. Four payments of 35,740 multiplied by four. The total comes to 14296. This is the total payment you are going to make during the lease term. And this is the total interest to be paid 14296 minus 100,000. Because against 100,000 you are paying 14296. So the difference is 499,960. That is the interest you are paying on these lease. Right of use assets. It is normally what is the total present value of the lease payments is the right of use of assets. But in case there is some direct cost to acquire this asset. So that should also be added into this 14296. And if there is any incentive sometime it happens the your lesser will say well, you will give you a rebate on let's say some few amount. So you reduce it out of that. Now then next we need to prepare the amortization schedule. That is the very important thing. If you know properly how to work out this amortization schedule things will be much easier. But if you go wrong in it, then the whole thing will spoil. Then we need to prepare general entries in a limited books for 2015 only not for four years just for one year. Then the income statement for the 2015 and the statement of financial position as on 31st December 2015. Again do remember it's not a whole balance sheet or whole income statement. It is extra just relating to the leased assets out of leased assets. What we are coming to the balance sheet and to the income statement income statement. We will show the depreciation and the interest in balance sheet. In balance sheet we will show the assets minus the accumulated depreciation. And also we have to report the leased liabilities. So let's see the solution of this. Thank you very much.