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Prepare the necessary journal entries in Sphene Bhd books

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Reference no: EM133005997

Problem - On 1 January 2020, Sphene Bhd leased machinery from Andesine Bhd. The lease term was for 8 years, with equal annual rental payments of RM7,950 at the beginning of each year. In addition, the lease provides an option to purchase the machinery at the end of the lease term for RM3,000. Sphene Bhd is reasonably certain it will purchase the machinery as the company believes the fair value of the machinery will be at least RM9,000. The machinery has a useful life of 10 years and a fair value of RM54,000. Sphene Bhd's incremental borrowing rate is 8%.

Required -

i. Identify the type of lease and justify your answer.

ii. How long should Sphene Bhd depreciate lease machinery from Andesine Bhd? Justify your answer.

iii. Prepare the necessary journal entries in Sphene Bhd's books in 2020.

Reference no: EM133005997

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