Reference no: EM132887640

Problem - Awesome Bhd leased two machineries. Its financial year ends on 30 June each year. The lease agreements are as follows:

Machinery A - Leased the machinery from Beaver Bhd on 1 July 2014 paying ten annual instalments of RM200,000 each. The machinery was acquired by Beaver Bhd on that date for RM1.6 million. The machinery had a useful life of 16 years with no residual value. Beaver Bhd would undertake all maintenance and repairs.

Machinery B - Leased a specialised machinery from Canary Bhd for ten annual instalments of RM60 million each payable at the end of each financial year. The machinery was completely installed and first operated on 1 July 2014. The fair value of the machinery as at that date was RM468 million. The machinery had an estimated useful life of 10 years and at the end of which it would be of no value. It is the company's policy to allocate the finance interest using the sum-of-digits method.

Required -

1. Explain the classification of the leases for machinery A and machinery B in accordance with MFRS 117 Leases.

2. Prepare the Statement of Financial Position (extract) as at 30 June 2015 and 30 June 2016 in the books of Awesome Bhd.