Which of the following is correct in respect of this operating lease in LM’s financial statements for the year to 31 December 20X8?

LM acquired an asset under a 5-year non-cancellable operating lease agreement on 1 January 20X8. Under the terms of the agreement, LM paid nothing for the first year and then made four payments of $50,000 in each subsequent year. LM adopted the provisions of IAS 17 Leases when accounting for this agreement.

Which of the following is correct in respect of this operating lease in LM’s financial statements for the year to 31 December 20X8?
A . An accrual of $40,000 was recognised.
B . An accrual of $50,000 was recognised.
C . A prepayment of $10,000 was recognised.
D . An expense of $50,000 was recognised.

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Answer: A