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Expand example 7.2 for accounting for lessee, for payment of consideration made at 30 december 2019 Example 7.2 Accounting Treatment by Lessee Saiyer Bhd. leases
Expand example 7.2 for accounting for lessee, for payment of consideration made at 30 december 2019
Example 7.2 Accounting Treatment by Lessee Saiyer Bhd. leases a piece of office furniture from Awoks Bhd. on 1 January 2019. The lease arrangements are as follows: The lease term is for 3 years and cannot be cancelled. Saiyer Bhd. is to make annual payments of RM3,000, beginning 1 January 2019. At the end of the lease, the equipment is required to be returned to Awoks Bhd. The equipment has a fair value of RM10,000 and an estimated economic life of 5 years. The implicit rate of the lease is 10%. Required: (a) If Saiyer Bhd. applies Paragraphs 22-49 of MFRS 16: (i) What would be the accounting treatment upon the initial recognition of the lease? (ii) What would be the accounting treatment to subsequently recognize the lease? (b) If Saiyer Bhd. elects not to apply the requirements in Paragraphs 22-49 of MFRS 16: (i) What would the accounting treatment upon the initial recognition of the lease be? (ii) What would the accounting treatment to subsequently recognize the lease be? (c) In your opinion, should Saiyer Bhd. apply, or choose not to apply, Paragraphs 22-49 of MFRS 16 in accounting for the lease? Solution: (a) (i) Cr 1 January 2019 Dr Right-of-use Asset 8,206.5 Lease Liability Cash 5,206,5 3,000 Lease Liability = PV of unpaid lease payments = 3,000 (PVIFA) = 3,000 (1.7355) = 5,206.5 Dr Cr 520.65 31 December Interest Expense 2019 Lease Liability 520.65 2.735.5 31 December Depreciation 2019 Accumulated Depreciation 2,735.5 Interest Expense = 10% x 5,206.5 = 520.65 8,206.5 Depreciation 3 years = 2,735.5 (b) (i) Dr Cr 3,000 1 January 2019 Lease Expense Cash 3,000 (ii)
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