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Square Bhd. signed a non-cancellable contract to lease an office space in 2019. However, due to some restructuring, the office space was no longer required.
Square Bhd. signed a non-cancellable contract to lease an office space in 2019. However, due to some restructuring, the office space was no longer required. At 1 August 2020, the company has made a provision for the future outstanding rentals of RM80,000 for the remaining five years lease based on a discount rate of 8%. The rent paid during the current financial year ended 31 July 2021 was RM15,000.
In addition, Square has signed a sub-lease to rent out the space for the first six months of the next financial year for a total income of RM6,000. No other tenants are expected to be found for the office space.
Required: In accordance with IAS 37 Provisions, contingent liabilities and contingent assets, a) Explain onerous contract and the proper accounting treatment for it; and b) Based on the above information, discuss how Square would prepare its financial statements for the year ended 31 July 2021.
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