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QUESTION 3 Kelappa Trading would like to enter into a 3-year rental contract of a warehouse to store its inventory. The owner of that
QUESTION 3 Kelappa Trading would like to enter into a 3-year rental contract of a warehouse to store its inventory. The owner of that warehouse offers 2 options: i) Kelappa Trading will occupy a certain area of XY cubic meters, but the specific place will be determined by the owner of the warehouse, based on actual usage of the warehouse and free storage. ii) Kelappa Trading will occupy the unit N-13 of XY cubic meters in the sector A of that warehouse. This place is assigned to Kelappa and no one can change it during the duration of the contract. The annual rental payment is RM20,000 includes cleaning services and it is payable in arrears (at the end of year). Kelappa's accountant finds out that the company would be able to rent out a similar unit in the warehouse next door for RM18,000 per year, without cleaning services, but would need to pay RM3,000 per year for its cleaning. The implicit rate of the lease is 5%. Required: a) In accordance with MFRS 16 Leases, discuss whether the above options contain a lease arrangement. (4 marks) b) Assuming Kelappa Trading choose option (ii), show the journal entries at the commencement of the contract and at the end of Year 1, Year 2 and Year 3. Show your computations. (16 marks) (Total 20 marks)
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