There were many criticisms of MFRS 117 Accounting for Leases which lead to the new MFRS 16 Accounting for Leases. Lessee Alpha Bhd enters into a contract to lease a warehouse on 1 Jan 2019 for 3 years. The annual rental payments are RM3,200,000, including the cleaning services, all payable at the end of the year. The rental for similar warehouse without cleaning services is RM2,800,000 per annum and the cost of cleaning services was RM600,000 per annum. Implicit interest rate is 7%. The estimated useful life of the warehouse is 20 years. Financial year end is 31 December.

Required: 

Illustrate with explanations the accounting treatment for this contract under MFRS 117 and MFRS 16.

Answer rating: 100% (QA)

As per mfrs 116 Each part of an item of property plant and equipment PPE with a cost that is significant in relation to the total cost of the item sha... View the full answer