On 1 April 20X8 Hop entered a two-year lease agreement for a photocopier and on that date made a payment of £1,000. The second payment is due on 1 April 20X9 which is £2,000. This has been classified as a low value asset. The £1,000 has been recorded as Dr Administration expenses, Cr Bank.

On January 1, 2013, Gloss Limited signed off on a leasing contract with MR Stationery to lease a photocopier. These detail relate to the lease contract.The cost of the photocopier is $525,000 and the fair value of the equipment on January 1 2013 is $700,000.The term of the lease is 7 years with no option to renew and the photocopier has an estimated useful life of 9 yearsAt the end of the lease term, the photocopier must be returned to Gloss Limited. It has a guaranteed residual value of $50,000. MR Stationery uses the straight line method of depreciation The lease agreement is annual rental payments beginning January 1 2013Boss Limited desires a 5% rate of return, which is known to MR. MR Stationery’s incremental borrowing rate is 7%.Requirements:  the financial year ends on December 31explain the nature of the lease for the lessee using the 5  criteria, prepare the lease schedule for the lessee, prepare the necessary journal entries for January 1 2013 and Dec 31 2013