Nelson Ltd Manufactures Specialised Machinery for Both Sale and Lease

Nelson Ltd manufactures specialised machinery for both sale and lease. On 1 July 2016, Nelson leased a machine to Poggi Ltd. The machine cost Nelson Ltd €195 000 to manufacture, and its fair value at the inception of the lease was €212 515. The interest rate implicit in the lease is 10%, which is in line with current market rates. Under the terms of the lease, Poggi Ltd has guaranteed €25 000 of the asset's expected residual value of €37 000 at the end of the 5-year lease term. The debit to the sales revenue account in Nelson's books is:

A) €187 548;
B) €195 000;
C) €205 063;
D) €212 515.

Correct Answer:

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