Question 2 (25 marks)

Banana Limited is a company listed in Hong Kong. Its financial year end is at 31 December. In the process of preparing financial statements for the year 2020, problems relating to the accounting treatments of the following activities were identified:

Banana Limited leased five trucks for the transportation of bananas to customers. The lease term was for three years from 1 January 2020 to 31 December 2022. To facilitate the use of the trucks in a more efficient way, Banana Limited had to modify the trucks to fit its needs. Therefore, one of the terms of the lease required Banana Limited to reinstate the trucks back to the original condition at the end of the lease. The expected restoration cost estimated by the truck manufacturer was $50,000 in total.

Banana Limited operates an outlet for the wholesale of bananas in Ho Man Tin with a policy of refunding purchased bananas by dissatisfied customers. Its policy of making refunds is posted at the outlet and printed on its sales receipts. Based on past experience, about 5% of the goods are returned for refund.

With reference to the relevant financial reporting and accounting standards, advise Banana Limited on the appropriate accounting treatments for the above activities.