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MGT401 Assignment 1 Spring 2021

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Question No. 1
Marks = 2
A famous news channel suddenly needs a broadcasting equipment to efficiently manage the
broadcasting services of one of its News channel “Network”. For this purpose, it has entered into
a four year lease agreement for the equipment with MSK Leasing Limited. The lease agreement
has duly signed by both organizations on following terms:
1. Annual lease rentals will be Rs.200, 000 for primary period and will be paid in advance.
2. Rentals for optional secondary period of three years will be 80%, 60% and 40% of the
annual rental in the primary period.
3. It is also agreed that these rentals will represent a fair commercial rate.
4. Useful life of machine is estimated to eight years with a cash value of Rs.600, 000.
You are required to identify whether this lease agreement will be a finance lease or an operating