1. Based on the available information, classify the following events into finance or operating lease and explain your reason.

1. A lease of a lorry for 7 years with a monthly payment of RM2,000. The cost of the lorry is RM100,000 with an expected useful life of 15 years. At the end of the lease term, the ownership will be transferred to the lessee.

(2 marks)

2. A lease of an equipment for 4 years with a monthly payment of RM1,000. The cost of the equipment is RM100,000 with an expected useful life of 10 years.

(2 marks)

3. A lease of a customed-made machinery for 6 years with a monthly payment of RM1,000. The cost of the machinery is RM100,000 with an expected useful life of 10 years.

(2 marks)

2. PRIMAX BHD signed a five-year contract to lease a machinery to LM BHD on 1 January 2020. The contract requires LM BHD. to make an annual payment of RM18,000 on the signing date and subsequently on 31 December every year. LM BHD has guaranteed RM8,000 on the residual value. The machinery was purchased at RM100,000 on 1 January 2019 with an estimated residual value of RM10,000 and useful life of seven years.

1. Assuming the implicit rate is 8 percent, show the journal entry on 1 January 2020 for PRIMAX BHD.

(4 marks)

2. Show all the journal entries on 31 December 2020 related to the lease for PRIMAX BHD.

(3 marks)

3. LTK BHD entered into an agreement to lease a forklift from HEAVY MACHINERY BHD on 1 January 2020. The lease is for six-year which requires LTK to make annual payments of RM25,000, payable in advance on 1 January 2020 and subsequently on 31 December each year. At the end of the lease, the forklift will be returned to HEAVY MACHINERY BHD. The cost of machine is RM200,000 with the expected residual value of RM20,000 and useful life of 10 years.

1. Assuming the implicit rate is 8 percent, show the journal entry on 1 January 2020 for LTK BHD.

(2 marks)

2. Show all the journal entries on 31 December 2020 related to the lease for LTK BHD.

(5 marks)