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Justify whether the lease agreement is to be categorised

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Reference no: EM132976871

Problem 1: You are required to justify the following situations whether the lease agreement is to be categorised as finance lease or an operating lease.

a) A company has entered into a four-year lease for a machine usage , with lease rentals of RM 150,000 payable annually in advance, and with an optional secondary period of three years at rental rates of 80%, 60%, and 40% of the annual rental in the primary period. It is agreed that these rental rates represent a fair commercial rate. The machine has a useful life of eight years and a cash value of RM 600,000.

Reference no: EM132976871

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