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Situation 1: Ahmad Sdn. Bhd. has entered into a four-year lease for machine usage, with lease rentals of RM150,000 payable annually in advance and an
Situation 1: Ahmad Sdn. Bhd. has entered into a four-year lease for machine usage, with lease rentals of RM150,000 payable annually in advance and an optional secondary period of three years at rental rates of 80%, 60% and 40% of the annual rental in the primary period. It is agreed that these rental rates represent a fair commercial rate. The machine has a useful life of eight years and a cash value of RM600,000. Justify whether this lease agreement is a finance lease or an operating lease.
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