IFRS LEASE

1. Kappa Berhad enters into a 10-year lease on 1 January 2020. Kappa Berhad incurred the following costs in respect of the lease:

• RM2,500 legal fees

• RM15,000 deposit made at the commencement date of 1 January 2020

• a lease incentive received by Kappa Berhad from the building’s owners of RM5,000 as the building had remained vacant for a period prior to Kappa Berhad taking on the lease.

Payments of the lease are RM125,000 pa in advance, with the first payment commencing on 1 January 2020. The interest rate implicit in the lease is 3%, and the present value of the future lease payments is RM973,263. There is no option to purchase the building at the end of the lease.

(a) What is the carrying amount of the right-of-use asset at 31 December 2020?

(b) What is the lease liability at 31 December 2020

2. Lamda entered into a lease arrangement for the right to use a machine. The details were as follows. Lease commencement date 1 January 2018 Present value of future lease payments RM7,210 Annual lease payments in arrears RM2,000 The interest rate implicit in the lease is 12% pa. The payments are made on the last day of each year. There is no option to purchase the asset at the end of the lease.

In accordance with IFRS 16, Leases what is the lease liability at 31 December 2019? Round your answer to the nearest RM.

3. Kota Berhad acquired an item of plant under a lease on 1 January 2020. The present value of the future lease payments at the commencement date was RM7,731,000 and three lease payments of RM3 million pa are due to be paid in arrears on 31 December each year. The useful life of the plant is deemed to be six years. There is no option to buy the asset at the end of the lease term. The interest rate implicit in the lease is 8% pa.

What is the total charge to the statement of profit or loss in respect of this lease for the year ended 31 December 2020?

4. Alpha Berhad enters into a lease with Omega Berhad for a machine. The terms of the 10 year lease require Alpha Berhad to make 10 annual lease payments of RM36,000 in arrears. The present value of the future lease payments is RM264,960 and the interest rate implicit in the lease is 6%. There is an option to buy the machine on the final date of the lease for RM25,000 (discounted value of RM13,950), which Alpha plc is expected to exercise. The useful life of the machine is 15 years.

Calculate the following values:

(a) The initial measurement of the right-of-use asset at the commencement of the lease on 1 January 2020.

(b) The carrying amount of the right-of-use asset at 31 December 2020.

(c) The lease liability at 31 December 2020

5. Epsilon Berhad acquired a machine under a lease arrangement. The terms of the lease are as follows. Date of commencement 1 July 2019 Present value of future lease payments RM24,300 Deposit (including the first payment) RM8,000 2 Remaining annual lease payments (in advance) 4 @ RM8,000 Interest rate implicit in the lease 12% The useful life of the machine is eight years. There is no option to purchase the machine at the end of the lease.

What is the carrying amount of the right-of-use asset as at 30 June 2020 in accordance with IFRS 16, Leases?

6.Explain whether each of the following arrangements contains a lease. If the arrangement contains a lease, determine whether the recognition exemptions in IFRS 16 can be applied.

(a) Alpha Berhad enters into an agreement with IT Rental Berhad for the use of a laptop computer for its financial controller. The agreement is for a three year period. During the three-year period, the financial controller can use the laptop in the office or at other locations required for her work. IT Rental Berhad cannot substitute the laptop for another during the three-year period.

(b) Beta Berhad enters into a contract with IT Rental Berhad for the use of a photocopier for a four-year period. The photocopier will remain on Beta Berhad’s site and will only be returned to IT Rental Berhad in the event of a major repair being required, in which case a substitution will be provided.

(c) Gamma Berhad enters into a two-year contract with Cars4U Berhad to obtain the use of cars for its team of sales representatives. The cars are required to be estate models, but from time to time, where it is economically advantageous to do so, the cars may be substituted by Cars4U Berhad.

(d) Delta Berhad enters into an agreement to use three architect’s drawing desks (of a specified style and size) for a period of ten months in return for ten monthly payments. The desks cannot be substituted during the 10-month period. Delta Berhad already has four of these desks held under similar lease arrangements. Delta Berhad has not elected to apply the recognition exemption in IFRS 16 to the other desk leases.

Answer rating: 100% (QA)

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