PART C: Leases

Platino Bhd leases the following assets from three lessors. The assets are to be used in the property development of the company. The details of the assets are as follows:

Lessor Colton Bhd Marisha Bhd Tinker Bhd

Type of asset	Excavator	Truck	Crane
Yearly rental	RM15,000 (first payment on 31 December 2020)	RM12,000 (first payment on 28 February 2021)	RM10,000 (first payment on 30 June 2020)
Inception date	1 January 2020	1 March 2020	1 July 2019
Lease term	10 years	7 years	5 years
Estimated economic life	20 years	9 years	10 years
Purchase option	RM75,000 at end of year 10.	None	None
Renewal option	None	None	None
Fair value at the inception of lease	RM220,000	RM150,000	RM55,000
Guaranteed residual value	-0-	RM15,000	RM10,000
Estimated residual value at end of lease term	RM90,000	RM11,000	RM10,000
Implicit rate	5%	4%	4%

CASE INSTRUCTIONS:

8. Prepare journal entries for Platino Bhd at the inception date of each lease.

9. For each of the assets, provide an analysis to determine the type of lease for lessor using the following schedule.

Transfer of title?	Yes/No
Contain purchase option?
Economic life test
PV of lease payment equals at least substantially all of FV of the leased asset?
Type of lease

10. Mr. Faizal, who just graduated in accounting, is auditing the companys financial statements for the year ended 31 December 2020. He noticed that on 1 January 2020, the company entered into a leasing contract with Cloud Bhd to lease a photocopy machine. The terms of the contract are as follows:

1. The non-cancellable lease term of 5 years.
2. Lease rental of RM3,500 per year (paid on every 31 December) and commencing on 31 Dec 2020.
3. Platino Bhd guarantees the residual value of RM2,500. iv. The estimated economic life of the asset is 5 years.

v. The implicit rate and Platino Bhds incremental borrowing rate is 6% per year.

In the companys accounting record, only the following journal entries for the photocopy machine are prepared for FYE 2020:

Dr. Leased asset 16,611

Cr. Lease liability 16,611

Mr. Faizal asked Miss Mia, an account clerk, the reasons the company prepared such journal entries. Miss Mia explained that the transaction should be recognized as a finance lease based on MFRS117 Leases.

Required (Round the answer to the whole RM):

1. Discuss whether the leasing transaction for the photocopy machine is appropriately recorded by Platino Bhd. (CTPS 1)

2. Explain whether there is any implication to Platino Bhd when the company records the leasing transaction in accordance with MFRS 117. (CTPS 2)

3. Discuss how Platino Bhd should account for the leasing transaction for the year 2020. Show the relevant calculations and journal entries, where appropriate. (CTPS 3,4)

v