Operating leases in the lessee"s financial statements
Entity E leases a machine under an operating lease from lessor F. The lease term, which begins on Jan 01, 01, is three years. F provides an incentive for E to enter into the lease by granting three rent-free months at the beginning of the lease term. After the rent-free period of time, the monthly lease payments, which are payable at the end of each month, are CU 1 per month.
Prepare any necessary entries in E"s financial statements as at Dec 31 for the years 01–03. Assume that it is appropriate to recognize the aggregate benefit of the incentives on a straight-line basis (SIC 15.5).