Question

Deeno Bhd, a dealer-lessor, leased a machine to Mody Sdn Bhd on 1 April, 2020 . The machine costs Deeno Bhd RM650,000 and its fair value at the inception of the lease was RM890,030. The lease is appropriately accounted for as a sale by Deeno Bhd. Deeno incurs initial costs of \(\mathrm{RM} 8,000\) to arrange for the lease financing. The lease is for a four-year period expiring 31 March, 2024 with the first annual lease payment on 31 March 2021. The interest rate implicit in the lease is \(9 \%\), which is inline with current market rates. Under the lease agreement, Mody Sdn Bhd has guaranteed RM30,000 of the asset's expected residual value of RM70,000 at the end of the lease term.

Discount factor on \(\mathrm{n}=4\) years, i= \(9 \%\) for:

annuity due is 3.53130; ordinary annuity is \(3.23972\); and single amount is \(0.70843\).

Required:

Determine the amount of sales revenue and profit to be recorded by Deeno Bhd for the sale transaction for year ended 31 December \(2020 .\)

Determine the amount of net investment for Deeno Bhd.

Compute the amount of interest income to be recorded by Deeno Bhd for year ended 31 December 2020 .

NOTE:

Provide relevant workings in the space given below and fill in the blank to answer the above questions. Use 2 decimal points whenever applicable.

Question 8(a)

The sale revenue to be recognized by Deeno Bhd is RM

Answer 1

(i) The above lease is a FINANCIAL LEASE. Because in the lease agreement it states that at the end of the lease period, ownership of all the three photocopier machines is transfered to lessee. This transfer of ownership at the end of the year option is available only on the financial lease.

(ii) JOURNAL ENTRIES IN THE BOOKS OF MAGNIFICENT BHD AS ON 31ST MARCH 2021,

DATE	PARTICULARS	AMMOUNT(RM)	AMMOUNT(RM)
01/04/2020	Photocopy machine a/c To, Bravo Bhd A/c (being asset taken for lease from bravo Bhd)	51000/-	51000/-
31/03/2021	Bravo Bhd A/c interest A/c To bank A/c ( being first lease ammount paid )	13636/- 1364/-	15000/-

31/03/2021

depreciation A/c to photocopy machine A/c ( Being depreciation on straight line base is charged 51000/5= 10200/- per year)

10200/-

10200/-

  

if there is a implicit interest rate then calculation of interest ammount is as follows

intrest ammount = 1/(1+ interest rate) * first lease ammount

= 1/(1+0.1)*15000

=1364/-

(iii) EXTRACTS FROM STATEMENT OF PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2021

particulars

ammount(RM)

Interest expenses

1364/-

depreciation

10200/-

FOR THE YEAR ENDED 31 MARCH 2022

PARTICULARS	AMMOUNT(RM)
interest expenses	2603/-

depreciation

10200/-

calculation of interest ammount for the 2nd year is as follows

=1/(1+ interest rate)(1+interest rate)* annual lease ammount

=1/(1+0.1)(1+0.1)*15000

= 2603/-

EXTRACT OF FINANCIAL POSITION AS ON 31 MARCH 2021 AND 2022

YEAR	2021	2022
PARTICULARS	AMMOUNT(RM)	AMMOUNT (RM)
NON current assets
photocopy machine	51000/-	40800/-
liability
bravo Bhd	36000/-	21000/-