EXERCISES - LEASES

QUESTION 1 (FEB 2022)

Plant and machinery at cost on 1 January 2020 RM23,000
Accumulated depreciation plant as at 1 January 2020 RM9,200
Bank RM12,470

Additional info :
On 31 December 2020, due to some financial problems, Johan Bhd entered into a sale and
lease back agreement with Berjaya Supply Bhd for one of its plants at the fair value of
RM2,000,000. The plant was purchased by Johan Bhd on 1 January 2019 at a cost of
RM3,000,000. Johan Bhd agreed to pay eight equal annual instalments of RM450,000 starting
from 31 December 2020. The interest rate implicit in the lease agreement is 7%.

It is the policy of the company to depreciate all equipment and plant on a straight line basis
over the useful life of 10 years.

Required :
i. Determined whether the transfer in the sale and leaseback qualifies as a SALE.
ii. Show the journal entries in the books of Johan
iii. Show the adjustment to be made in the statement of financial position as at 31
December 2020.

Question 2

SaZue Bhd entered into an agreement with ZS Equipment to lease a machinery on 1 January
2020.

SaZue Bhd has the right to use the asset with a fair value of RM87,400 for a 4 year period.
The annual rental payment for the first three years was RM28,000 including cleaning services
of RM2,000 beginning 31 December 2020. The final payment of RM25,975 was paid at the
end of the lease period.

The auditors of SaZue Bhd have calculated the implicit rate in the lease as 10% per annum.
The economic life of the machine is 8 years with a residual value of RM6,000. SaZue Bhd has
paid a deposit of RM5,000 to ZS Equipment before the lease commences.

The arrangement provides for SaZue Bhd an option to purchase the machine at the end of the
lease term period at the price below the expected fair value of the machine. Because the
option price is significantly economic incentive to exercise the purchase option, SaZue Bhd
accept this option.

Required:

a. MFRS16 Leases requires a lessor to make a classification of all lease contracts into
two types. Explain the accounting treatment to record an operating lease in lessor’s
books.
(3 marks)
b. Prepare journal entries in the books of SaZue Bhd for the year ended 31 December
2020. Narrations are not required.
(9 marks)

c. Prepare an extract of Statement of Financial Position of SaZue Bhd as at 31 December

2021.
(5 marks)

d. Prepare note on leases in SaZue Bhd’s books as at 31 December 2020.

(3 marks)

Notes:

Calculate all the amounts to the nearest RINGGIT MALAYSIA.