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On 30 September 2019, Getah Glove Bhd entered into an arrangement with Maju Bhd. Maju Bhd had purchased a machine from Getah Glove Bhd, but due cash flows problems the company arranged a sale and leaseback of the machine to Getah Glove Bhd. This machine has a carrying amount of RM105,000. Maju Bhd will sell the machine to Getah Glove Bhd for RM93,432 and immediately lease it back for four years at a rental of RM28,125, payable yearly in advance. It was agreed that the machine should revert to Getah Glove Bhd at the end of the four-year period with no scrap value. The lease is non-cancellable and interest rate implicit in the lease is 14%. Maju Bhd depreciates the machine on straight line basis. The impact of pandemic Covid-19 had tremendously increased the demand of medical supplies produced by Getah Glove Bhd particularly the face masks and gloves. Getah Glove was considering to buy a plant at RM175,000 to expand its operating capacity on 1 April 2020. Its guaranteed residual value at the end of lease term is estimated to be RM10,000. Unfortunately, the liquidity of Getah Glove was not sufficient for this investment. Getah Glove was unable to buy the required plant. Glove entered into an agreement to lease the plant from the manufacturer to resolve the problem. The lease required four annual payments in advance of RM50,000 each commencing on 1 April 2020. The plant would have a useful life of five years and will be disposed at the end of this period. The implicit interest rate is 10% per annum. The account was ascertained that the lease was to be an operating lease. He commented that the agreement would improve the companys return on capital employed as compared to an outright purchase of the plant. Required: a) Explain how they should treat the agreement between Getah Glove Bhd and Maju Bhd (3 marks) (CLO2:PLO2:C2) b) Prepare the journal entries to record the transactions in the books of Maju Bhd (lessee) for the year ended 30 September 2020.

(7 marks) (CLO2:PLO2:C2) c) Discuss how the lease on plant should be treated by Getah Glove according to MFRS 16. (3 marks) (CLO2:PLO2:C2)

ACCT2131/June2020 Page 3 of 8 d) Compute the present value minimum lease payment of leasing contract of the plant. Determine the lease liability.

(4 marks) (CLO2:PLO2:C3)

e) For the lease of plant, prepare: i. extract of Statement of Profit or Loss ii. extract of Statements of Financial Position for the years ended 30 September 2020 (8 marks) (CLO2:PLO2:C3)

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