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Hannah Plc. entered into a five-year lease of factory plant commencing on 1.1.2018. The plant had a useful economic life of 15 years and a fair value of K3 million on that date. Hannah spent K200,000 to transport the plant from the lessors premises into its factory. The cost of installing the plant in Hannahs factory amounted to K100,000. Legal costs relating to the lease contract incurred by Hannah were K50,000. The lease requires Hannah to initially pay a rental (due 31 December each year) of K500,000 p.a for the first three years of the lease term and K300,000 thereafter. Hannah was required to guarantee the residual value of the plant at end of the lease term at a fair value of K1.2 million. The company has estimated (considering the rate at which the plant will be used) that the residual value is only likely to be K800,000 at end of the lease term. Hannah is required to transport the plant back to the lessors premises at end of the lease term. The cost of this has been estimated at K250,000. The companys incremental borrowing rate at 1 January 2018 was 15%. All amounts requiring discounting must be discounted at 15%. Required: Advice on how to account for this lease transaction. (5 marks) All Groove Plc employees except for the senior management belong to this pension scheme. The scheme requires monthly employer and employee pension contributions to be paid to a separate pension fund amounting to 20% and 10% of the employees basic salary respectively. Total pension contributions paid during the year to 31 December 2018 amounted to K1.5 million. However, as at 1.12.2018, employer and employee contributions for the last two months of the year amounting to K 90,000 and K 50,000 respectively are yet to be remitted to the pension fund. There were no arrears in pension contributions at 31.12.2017. Under the scheme, accrued employee benefits are computed based on each employees years of service and the salary at the time of retirement. Where the fund assets are inadequate to meet pension payments, Groove Plc makes oneoff lumpsum payments to rectify the position. However, any excessive fund assets can only be utilized through increasing accrued pension upon agreement with the fund trustees or Groove Plc temporarily suspending periodic employer contributions. As at 31.12.2017, the accrued employee pension benefits and the fair value of the pension fund assets amounted to K22.5 million and K17.3 million respectively. Total Pension benefits accrued during the year to 31.12.2018 amounted to K 1.8 million of which K1.3 million was on account of employee services rendered in that year with the balance being attributable to a change in the benefit formula which has been applied retrospectively. As a result of a restructuring which led to a number of employees being laid off, there was a reduction in the accrued employee pension benefits of K1.1 million as the former employees no longer belonged to the scheme having gotten their terminal benefits under the restructuring. On 31.12.2018, accrued employee pension benefits and the fair value of pension fund assets amounted to K25 million and K20 million respectively. The fair value of fund assets at 31.12.2018 includes accrual of contribution income for both employee and employer contributions not yet remitted by Groove Plc as at 31.12.2018. Yields on high-class corporate bonds with the same term to maturity as the accrued employee pension benefits were 12% and 13% at 31.12.2017 and 31.12.2018 respectively. The Directors of Groove Plc are seeking advice on how the pension scheme must be accounted for in the financial statements for the year to 31 December 2018. Required: Advise the Directors of Groove plc on how the above transactions must be treated in the companys financial statements for the year to 31.12.2018. Your advice must include the presentation and measurement of the elements involved. (5 marks) [Total 10 marks]

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