Tulga Bhd enters into a five-year lease agreement of a machine, which has a cost and market value of RM2.95 million, with Gamze Bhd on 1 January 2018. The lease payments are RM600,000 per year, payable at the end of the financial year. The financial year-end of both companies is 31 December. To obtain the lease, Tulga Bhd paid a one-time commission fee of RM10,000 to the agent for arranging the lease and RM5,000 for the delivery of the machine. At the commencement date of the lease, the implicit interest rate and borrowing rate of the machine are 5% and 6% per annum, respectively. Tulga Bhd and Gamze Bhd use the straightline method to depreciate the machine and the machine is estimated to have a useful life of 10 years and a salvage value of RM30,000. The machine is reverted to Gamze Bhd at the end of the lease term.

REQUIRED:

(Round all numbers to the nearest RM).

(a) Determine the cost of the machine for Tulga Bhd on 1 January 2018.

(b) Prepare all the related journal entries for Tulga Bhd for the financial year 2018.

(c) Discuss the type of lease arrangement for Gamze Bhd.

(d) Prepare all the related journal entries for Gamze Bhd for the financial year 2018.