Vacation Villa Bhd leases a hotel building from Rasbora Bhd for a period of 10 years....

 

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Vacation Villa Bhd leases a hotel building from Rasbora Bhd for a period of 10 years. It pays a fixed yearly rental of RM10,000,000 plus 2% of operating revenue in each year to Rasbora Bhd. The lease is non-cancellable. At the end of Year 10, the hotel building together with the business will be returned to Rasbora Bhd. The hotel building has a fair value of RM150,000,000 at the inception of the lease. The economic life of the building is estimated at 50 years. Operating revenue of the hotel business is estimated at RM25,000,000 per year. Vacation Villa Bhd's current cost of borrowing is 10%. Required: a. b. Determine whether the lease is a finance lease or an operating lease; Explain the accounting treatment in the books of Vacation Villa Bhd. Vacation Villa Bhd leases a hotel building from Rasbora Bhd for a period of 10 years. It pays a fixed yearly rental of RM10,000,000 plus 2% of operating revenue in each year to Rasbora Bhd. The lease is non-cancellable. At the end of Year 10, the hotel building together with the business will be returned to Rasbora Bhd. The hotel building has a fair value of RM150,000,000 at the inception of the lease. The economic life of the building is estimated at 50 years. Operating revenue of the hotel business is estimated at RM25,000,000 per year. Vacation Villa Bhd's current cost of borrowing is 10%. Required: a. b. Determine whether the lease is a finance lease or an operating lease; Explain the accounting treatment in the books of Vacation Villa Bhd.

Answer rating: 100% (QA)

Answer a The lease is operating lease Operating lease are lease which are other than finance ... View the full answer