Question $1$

Luna Leasing Sdn Bhd $($LLSB$)$ agrees to provide Pali Sdn Bhd $($PSB$)$with equipment under a

non cancelable lease for $6$ years. The cost of equipment is RM$65,264.$ It has an expected

useful life of $5$ years. The lease terms are as follows:

i$.$ The equipment will have no residual value when the lease term ends.

ii$.$ The lease rental is determined on a $16\%$ rate per annum.

iii. PSB agrees to pay all maintenance costs amounted to RM$300$ per year throughout

the lease period.

iv$.$ Lease rental of RM$15,264$ per year is to be paid on $31$ December each year for $5$

years commencing $31$ December $2021$ and RM$15,310$ is to be paid on the last year of

leasing agreement.

The equipment was delivered on $1$ January $2021$ to PSB$.$ Both companies adjust and close

books on $31$ December every year. PSB depreciates the equipment by using straight line

method. The title of the equipment is to be passed to PSB at the end of the lease

period.

Required:

a$)$ Discuss the factors that would influence the management's decision to lease rather

than purchase an asset.

$(5$ marks$)$

b$)$ Prepare the related journal entries for the year $2021$ in the book of LLSB and PSB

$(15$ marks$)$