Syarikat Bunga Raya Bhd signed two (2) non-cancellable lease contracts on January 1, 2020. The first lease payments for both contracts due on January 1, 2020. Details of both leases are as follows:

Lessor Mega Bhd BinaLink Bhd

Leased asset Photocopier machine lorry

Bayaran pajakan tahunan RM24,000 RM28,403.50 (termasuk RM2,000 untuk belanja penyelenggaraan)

Lease term 10 years 3 years

Asset useful life 25 years 5 years

mega bhd

Bargain purchase option a) RM150,000 at the end of year 10

b) RM8,000 at the end of year 15

binalink bhd

RM30,000 at the end of year 3. This value is substantially all of the fair value of the asset.

mega bhd

Bargain-renewal option 5-year renewal atRM24,000 per year after 10years.

Bunga Raya will accept this option if the bargain purchase option is not exercised.

binalink bhd

1-year renewal at RM15,000. No penalty for nonrenewal.

At the commencement date, the lessee is reasonably certain not to renew the lease term.

Fair value of a leased asset at the commencement date. RM240,000 RM100,000

Guaranteed residual value RM0 RM0

Unguaranteed residual value RM0 RM0

Lessee's incremental borrowing rate 8% 8%

Lessor's implicit rate Lessee is unaware of the rate 6% Lessee is aware of the rate)

Fair value of asset at the end of lease term a) RM160,000 at the end of year 10 RM30,000

b) RM120,000 at the end of year 15

At the end of the lease term, Yes Yes

lessor does not have an alternative

use for the asset

Additional information:

Present value table:

Present Value of 1 (PV)

PV3,6% = 0.83962

PV3,8% = 0.79383

PV4,6% = 0.79209

PV4,8% = 0.73503

PV10,6% = 0.55839

PV10,8% = 0.46319

PV15,6% = 0.41727

PV15,8% = 0.31524

Present Value of an Ordinary Annuity of 1 (PVOA)

PVOA3,6% = 2.67301

PVOA3,8% = 2.57710

PVOA4,6% = 3.46511

PVOA4,8% = 3.31213

PVOA10,6% = 7.36009

PVOA10,8% = 6.71008

PVOA15,6% = 9.71225

PVOA15,8% = 8.55948

Present Value of an Annuity Due of 1 (PVAD)

PVAD3,6% = 2.83339

PVAD3,8% = 2.78326

PVAD4,6% = 3.67301

PVAD4,8% = 3.57710

PVAD10,6% = 7.80169

PVAD10,8% = 7.24689

PVAD15,6% = 10.29498

PVAD15,8% = 9.24424

a) Evaluate the criteria for classification of the lease by the lessor.

b) Prepare the journal entries to the record the transaction on January 1, 2020, on the book of:

i) Bunga Raya Bhd

ii) Mega Bhd.

iii) BinaLink Bhd.