1. You are required to justify the following situations whether the lease agreement is to be categorised as a finance lease or an operating lease.
2. A. Matahari Berhad acquired the use of plant over three years by way of a lease. Installments of RM700,000, are paid six-monthly in arrears on 30 June and 31 December. Delivery of the plant was on 1 January 2020 and so the first payment of RM700,000 was on 30 June 2020. The present value of the minimum lease payment is RM3,000,000. The interest implicit for the usage of the plant is 10% per six months. The plant would normally be expected to last three years. Matahari Berhad is required to insure the plant and cannot return it to the lessor before the end of the lease period without severe penalties.