Question 1 (25 marks) (a) on 31 December 2018, Myro Bhd leased equipment to Westo Industries Bhd for a four-year period ending 31 December 2022 at which time possession of the leased asset will revert back to Myro Bhd. The equipment cost Myro Bhd RM362,760 and has an expected useful life of six years. Its normal sales price is RM362,760. Myro Bhd incurred RM3,000 to negotiate and execute the lease agreement. The lessee guaranteed residual value at 31 December 2022 is RM25,000. Equal payment under the lease are 3 RM100,000 and are due on 31 December each year. The first payment was made on 31 December 2018. The incremental borrowing rate of Westo Industries is 12%. The implicit interest rate of 10% is not readily determined by the lessee. Both companies use straight-line depreciation. Present value of Present value of Present value of RM1 ordinary annuity of annuity due of RM1 RM1 10%, 4 years 0.68301 3.16987 3.48685 12%. 4 years 0.63552 3.03735 3.40183 Required: 1 Show how Myro Bhd calculated the RM100,000 annual lease payments. (2 marks) ii. Prepare the appropriate entries for both Westo Industries Bhd and Myro Bhd on 31 December 2018. (4 marks) Prepare an amortization schedule describing the pattern of interest charges over the lease term for the lessee. (3.5 marks) iv. Prepare all entries for Westo Industries Bhd on 31 December 2020. (2.5 marks) Show/Describe how the information pertaining to the lease transaction would be presented in the Statement of comprehensive income and Statement of financial position for Westo industries Bhd for the year ended 31 December 2020. (3 marks) V. Question 1 (25 marks) (a) on 31 December 2018, Myro Bhd leased equipment to Westo Industries Bhd for a four-year period ending 31 December 2022 at which time possession of the leased asset will revert back to Myro Bhd. The equipment cost Myro Bhd RM362,760 and has an expected useful life of six years. Its normal sales price is RM362,760. Myro Bhd incurred RM3,000 to negotiate and execute the lease agreement. The lessee guaranteed residual value at 31 December 2022 is RM25,000. Equal payment under the lease are 3 RM100,000 and are due on 31 December each year. The first payment was made on 31 December 2018. The incremental borrowing rate of Westo Industries is 12%. The implicit interest rate of 10% is not readily determined by the lessee. Both companies use straight-line depreciation. Present value of Present value of Present value of RM1 ordinary annuity of annuity due of RM1 RM1 10%, 4 years 0.68301 3.16987 3.48685 12%. 4 years 0.63552 3.03735 3.40183 Required: 1 Show how Myro Bhd calculated the RM100,000 annual lease payments. (2 marks) ii. Prepare the appropriate entries for both Westo Industries Bhd and Myro Bhd on 31 December 2018. (4 marks) Prepare an amortization schedule describing the pattern of interest charges over the lease term for the lessee. (3.5 marks) iv. Prepare all entries for Westo Industries Bhd on 31 December 2020. (2.5 marks) Show/Describe how the information pertaining to the lease transaction would be presented in the Statement of comprehensive income and Statement of financial position for Westo industries Bhd for the year ended 31 December 2020. (3 marks) V
