Lapton Sdn Bhd enters into a leasing agreement on 1 January 20x3 for an equipment costing...

 

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Lapton Sdn Bhd enters into a leasing agreement on 1 January 20x3 for an equipment costing RM94,770. The lease agreement requires payment of five annual rents of RM25,000 each, payable in arrears at the end of the respective years. After the end of primary lease period, the lessee has the right to purchase the asset at a bargain price of RM20,000. At the date of the lease agreement, Lapton is reasonably certain that it will exercise the right to purchase the equipment at the end of the lease term. Lapton believes that the equipment will last for eight years and will have no residual value at the end of that period. It depreciates asset of this type on the straight line method. Lapton engages the lessor to service the equipment, paying a servicing fee of RM5,000 per year. The lease agreement provides for a clause on contingent rent in that if market interest rate shall go up by 1% per annum, the annual rents will be increased by RM1,000 per annum. The interest rate implicit in the lease is nit readily determinable. Lapton's incremental borrowing cost is 10% per annum. Required: Discuss accounting treatment Lapton Sdn Bhd enters into a leasing agreement on 1 January 20x3 for an equipment costing RM94,770. The lease agreement requires payment of five annual rents of RM25,000 each, payable in arrears at the end of the respective years. After the end of primary lease period, the lessee has the right to purchase the asset at a bargain price of RM20,000. At the date of the lease agreement, Lapton is reasonably certain that it will exercise the right to purchase the equipment at the end of the lease term. Lapton believes that the equipment will last for eight years and will have no residual value at the end of that period. It depreciates asset of this type on the straight line method. Lapton engages the lessor to service the equipment, paying a servicing fee of RM5,000 per year. The lease agreement provides for a clause on contingent rent in that if market interest rate shall go up by 1% per annum, the annual rents will be increased by RM1,000 per annum. The interest rate implicit in the lease is nit readily determinable. Lapton's incremental borrowing cost is 10% per annum. Required: Discuss accounting treatment

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