On 1 January 2021, ABC is planning supplying company vehicles for its senior managers and is comparing 3 choices: Choice
Posted: Sun Jul 03, 2022 4:14 pm
On 1 January 2021, ABC is planning supplying company vehiclesfor its senior managers and is comparing 3 choices:
Choice A The vehicles can be bought for RM75,274 with a 100%loan. The vehicles would be bought on 1 January 2021 and held for 4years. The estimated disposal value is RM29,753. Monthlymaintenance costs would be RM235 per month. The loan would berepayable in 4 yearly instalments starting 1 January 2022. Assumethat an average yearly percentage rate on a loan is 5%.
Choice B The vehicles can be leased with a 12-months contract on1 January 2021 with no buy option. The cost would be RM1,900 permonth in advance including maintenance charge.
Choice C A final choice is the vehicles can be lease for aperiod of 4 years commencing on 1 January 2021. The vehicles have atotal market value of RM75,274 on this date. The lease requirespayment of RM1,403 monthly for the period of lease duration ofwhich RM235 is a maintenance charge. ABC likes to show themaintenance charge as a separate line item in profit or lossaccount.
At the end of the 4th year, there is no choice to renew thelease or buy the vehicles, and there is disposal value guarantee.The interest to be charged for the year ended 31 December 2021 isestimated at RM2,274 based on the implicit interest rate in thelease. The net present value of the lease payments for four yearsis RM50,803 excluding the maintenance charge.
Additional information: The profit before tax and beforeaccounting for any of the 3 choices for vehicles is likely to beRM100,000 for the year ended 31 December 2021. ABC depreciatesvehicles over a 4 years period using straight line method.
You are required to: propose how to account for the abovetransactions in the ABC’s financial statement for the year ended 31December 2021.
Submission format: Lessor? Lessee? Any exemption?
1. Brief relevant discussion on: Key definition, Recognition,Measurement & Disclosure/Presentation of IFRS16.
2. Propose how ABC can account for the above transactions inaccordance with the above IFRS.
Choice A The vehicles can be bought for RM75,274 with a 100%loan. The vehicles would be bought on 1 January 2021 and held for 4years. The estimated disposal value is RM29,753. Monthlymaintenance costs would be RM235 per month. The loan would berepayable in 4 yearly instalments starting 1 January 2022. Assumethat an average yearly percentage rate on a loan is 5%.
Choice B The vehicles can be leased with a 12-months contract on1 January 2021 with no buy option. The cost would be RM1,900 permonth in advance including maintenance charge.
Choice C A final choice is the vehicles can be lease for aperiod of 4 years commencing on 1 January 2021. The vehicles have atotal market value of RM75,274 on this date. The lease requirespayment of RM1,403 monthly for the period of lease duration ofwhich RM235 is a maintenance charge. ABC likes to show themaintenance charge as a separate line item in profit or lossaccount.
At the end of the 4th year, there is no choice to renew thelease or buy the vehicles, and there is disposal value guarantee.The interest to be charged for the year ended 31 December 2021 isestimated at RM2,274 based on the implicit interest rate in thelease. The net present value of the lease payments for four yearsis RM50,803 excluding the maintenance charge.
Additional information: The profit before tax and beforeaccounting for any of the 3 choices for vehicles is likely to beRM100,000 for the year ended 31 December 2021. ABC depreciatesvehicles over a 4 years period using straight line method.
You are required to: propose how to account for the abovetransactions in the ABC’s financial statement for the year ended 31December 2021.
Submission format: Lessor? Lessee? Any exemption?
1. Brief relevant discussion on: Key definition, Recognition,Measurement & Disclosure/Presentation of IFRS16.
2. Propose how ABC can account for the above transactions inaccordance with the above IFRS.