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Prepare journal entry for bayu bhd to record lease activity

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Reference no: EM132544931

On 1 January 2018, KOMSIS Bhd, signs a non-cancellable lease agreement to lease a computer system for four (4) years to BAYU Bhd. Annual lease payments of RM35,000 are to be made at the end of each lease year starting 31 December 2018. The implicit rate which is known by both parties is 10% and the incremental borrowing rate for BAYU Bhd is 9%. The cost and the fair value of the asset at the inception date is RM200,000. The straight-line method is used to depreciate the asset and the useful life of the assets is 8 years. BAYU Bhd guarantees a residual value of RM12,000 at the end of the lease term, which equals the expected residual value of the asset.

REQUIRED:

(Round your answer to two decimal points)

Question (a) Determine the type of lease to KOMSIS Bhd. Justify your answer as per MFRS 16 Leases.

Question (b) Determine the present value of lease payments for BAYU Bhd and prepare the related journal entries on 1 January 2018.

Question (c) Prepare the journal entries for BAYU Bhd to record leasing activities during the first year of the lease term (including the amortization schedule for the first two years of the lease term).

Question (d) Prepare journal entries for KOMSIS Bhd to record leasing activities during the first year of the lease.

Question (e) Describe the effect on the lessee of a "purchase option" on accounting for a finance lease transaction.

Reference no: EM132544931

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