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Hati Sdn Bhd enters into a finance lease with Lessor Sdn Bhd on 1 January 2016 for an item of machinery. The lease terms are as follows:
i. Lease rental of RM50,000 per year for 5 years, payable in advance and the first rental is due on 1 January 2016.
ii. The useful life of the machine is 5 years with zero residual value. The machine could be bought outright for cash of RM200,000 (which is the same with PVMLP value).
iii. Hati Sdn Bhd adopts a straight line depreciation policy for fixed assets. Its financial year ends on 31 December.
Required:
Question a. Show the journal entry in Hati's accounts to record the lease transaction at its inception
Question b. Calculate the depreciation required on the leased asset
Question c. Record the lease liability and the allocation of the finance charge in each period, using: Actuarial method with 12.6% of interest rate
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