On 1 January 2019, Farmer Bhd. enters a lease contract with ABC Sdn Bhd, for the rental of 3 printers, a cutting system, and a copy machine for 2 years. The machines will be returned to ABC Sdn Bhd at the end of the 2 years. The economic life of all machines is 5 years.

Farmer Bhd will pay monthly payments of RM5,000 for the following services:

	RM / Per month
Rental of all machines	4,700
Maintenance of all machines	200
Reimburse ABC Sdn Bhd's administration costs associated with the contract.	100
Total	5,000

Farmer Bhd could have bought one printer for RM60,000, a cutting system for RM40,000 and a copy machine for RM45,000 if they were purchased on cash basis. The third-party company provides similar maintenance services for RM30 per machine per month.

Required:

Advise Farmer Bhd and ABC Sdn Bhd on how to account for this lease contract under MFRS 16.

Answer rating: 100% (QA)

Under MFRS 16 a lease is defined as a contract or part of a contract that conveys the right to use an identifiable asset over a period of time in exch... View the full answer