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Show the necessary journal entries required in the books

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Reference no: EM132582135

On 1 January 2016 Steel Bhd had entered two leasing contracts with Blackmore Bhd (the lessor) effective from that date, details of which are as follows:

Contract 1

An operating lease for mobile lifting equipment for use in the finished goods warehouse, at an annual rental of RM45,000 payable in advance, for a period of six years. The fair value of the equipment was RM300,000 and its useful life is 12 years.

Contract 2

A finance lease for plant, at an annual rental of RM208,000 payable in advance, for a period of six years.

The initial fair value of the plant was RM800,000. The economic life is six years and at the end of the lease period Steel Bhd will take legal possession of the plant. Depreciation is provided on a straight-line basis, assuming no residual value.

Finance charges are at the rate of 15% per annum on the balance of the outstanding obligation. Calculation of finance charge is using actuarial method.

Required:

Question i. Show the necessary journal entries required in the books of Steel Bhd for the year ended 31 December 2016 for both contracts.

Question ii. Show the necessary journal entries required in the books of Blackmore Bhd for the year ended 31 December 2016

Reference no: EM132582135

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