Answer scheme:

ODL TEST FAR 510

SEM OCT 2020-FEB 2021
Question 1
a) Briefly explain whether there is existence of lease arrangement in accordance with
MFRS16 Leases.

Yes.
There is existence of lease arrangement shown by:

i. There is substantive right by lessor to substitute the damage phone during

the contract period.
ii. A contract contains a lease only if it relates to an identified asset.eg;
smartphones
iii. A lessee has the right to direct the use of an identified asset in whatever
situation and purposes during the lease period
iv. A lessee Obtain substantially all of the economic benefits from the use of
the identified asset throughout the period of use
(5 marks)
b) Prepare journal entries in the books of Micromax Bhd for the year ended 31 March
2020. Narrations are not required.
Finance
Outstanding Closing
Opening Payment( charge
Year-end (a) b) C=(a-b) D=(10%)(C) (a-b+d)
31/3/20 155,000 (35,000) 120,000 12,000 132,000
31/3/21 132,000 (35000) 97,000 9700 106,700
31/3/22 106,700 (50000) 56,700 5,670 62,370
31/3/23 62,370 (50000) 12,370 1,237 13,607
31/3/24 13,607 (13,607) 0 0 0

I April 2019 – inception of lease and payment of annual rent

Dr ROU 155,000 √
Cr Lease payable-Sprint 155,000 √

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 DR LEASE PAYABLE- 35,000 √
Sprint
CR BANK 35,000 √

31 March 2020 – to record lease interest expense and depreciation

expense
DR SOPL-INTEREST EXPENSE 12,000 √
CR LEASE PAYABLE-Sprint 12,000 √

DR SOPL-DEPRECIATION 31,000 √
CR ACCUMULATED 31,000 √
DEPRECIATION
(FV/UL)155,000/5yrs
(8√=8 marks)

c) Prepare the journal entries for the lease back transaction in the books of Dixie Sdn
Bhd for the year ended 31 March 2020 assuming it is a finance lease. Narrations
are not required.

Sum of digit= 1+2+3+4=10

Interest = Total payment-Fair value

= (RM80,000x4=RM320,000)-(RM300,000)
=RM20,000√

OPENING INTEREST OUTSTANDING PAYMENT CLOSING

31/3/20 300,000 4/10x20,000=8,000 308000 (80000) 228,000
228,000 3/10 234,000 (80,000) 154,000
31/3/21 x20,000=6,000
154,000 2/10 158,000 (80,000) 78000
31/3/22 x20,000=4,000
78000 1/10 80,000 (80,000) 0
31/3/23 x20,000=2,000

Lease under finance lease (lessor book)

Dr. Lease receivable -Dixie 300,000 √
Cr. Lease equipment 300,000√

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 Dr. Lease receivable-Dixie 8,000 √

Cr. Lease interest receive 8,000√

Dr. Bank 80,000 √

Cr. Lease receivable-Dixie 80,000 √
(7 marks)

d) Prepare an extract of Statement of Profit or Loss for the year ended 31 March 2020
and Statement of Financial Position as at that date in the books of Micromax Sdn
Bhd. (Note on the leases is not required)

Micromax Sdn Bhd

Extract Statement of profit or loss for the year ended 31 march 2020

Expenses:
INTEREST EXPENSE-smart phone 12,000 √
Interest expenses- office equipment 8,000 √
DEPRECIATION: smart phones packages 31,000 √√
rm155,000/5
Depreciation: Equipment RM300,000/4 75,000 √√

Micromax Sdn Bhd

Extract Statement of financial position as at 31 December
Sprint Bhd Dixie Bhd
NON CURRENT ASSET: 155,000√ 300000 √
Leased assets at FV
Less: accumulated depreciation (31,000) √ (75,000) √
Carrying value

NON CURRENT LIABILITY

-LEASE PAYABLE sprint bhd 97,000√
Lease payable Dixie bhd 154,000 √

CURRENT LIABILITY 35,000√

-LEASE PAYABLE sprint bhd
-lease payable Dixie bhd (80,000- 74,000 √√
6,000)

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 (15√x1/3=5 marks)
(Total:25 marks)

Question 2

a) (i) The impairment loss (if any) for the buses as at 31 March 2020

Reducing balance method Depreciation RM

RM
Cost (1/4/2017) 540,000
Depreciation 540,000 x 10% 54000 √
(31/3/2018)
Depreciation (540,000 – 54,000) 10% 48,600 √
(31/3/2019)
Depreciation (540,000 – 54,000 –
(31/3/2020) 48,600)x10% 43,740 √ 146,340
Carrying Amount 393,660
(31/3/2020)

Recoverable amount will be the higher of fair value less cost to sell and Value-in-Use.

Value in Use as at 31/3/2020

Year Estimated Discount (10%) Discounted
Cash flow Amount
RM RM
2017 100,800 0.909 91,627 √
2018 99,080 0.826 81,840 √

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 2019 98,880 0.751 74,259 √
2020 96,120 0.683 65,650 √
Value in use 331,376 @139,909
Scrap value= value of asset remain at the end of asset useful life.**

Compare FVLCTS & VIU, take whichever is higher√

Fair value less cost to sell = 235,000 (given in the question)*
Value in Use = 313,376@139909
Recoverable amount (the higher of) = RM 313,376√@235000

Since CA > RA, there is an impairment loss of = 393,660(CA) – 313,376(RA)@235000 =

RM80,284√@158660
(10√ = 10 marks)

(ii)The impairment loss or reversal for on 31 December 2020

RM RM
Carring amount after After impairment loss 313,376√
impairment loss
Less: Depreciation until 369,030 x 10%x9/12 (27,677)√
31/12/20
Carrying amount 285,699
(31/12/2020)

Recoverable Amount
Fair value less costs to sell = RM450,000√
Value in Use = RM410,000√
Recoverable amount (the higher of) = RM 450,000√

Since CA(RM285,699) < RA(RM450,000, therefore there is an indication of reversal of

impairment loss for the buses. √

Calculation of the reversal amount:.

The value of asset without impairment loss test

Reducing balance method Depreciation RM

RM
Cost (1/4/2017) 540,000
Depreciation 540,000 x 10%x12/12 54000 √
(31/3/2018)
Depreciation (540,000 – 54,000) 48,600 √
(31/3/2019) 10%x12/12
Depreciation (540,000 – 54,000 –
(31/3/2020) 48,600)x10%x12/12 43,740 √

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 Depreciation (540,000 – 54,000 – 48,600- 29,525 √√ (175,865)
(31/12/2020) 43740)x10%x9/12
Carrying Amount Before without impairment 364,135
(31/12/2020) loss

Reversal amount
CA without impairment 364,135
CA with impairment 285,699
Reversal amount 78,436√

Since RM78,436 is lower than the original impairment amount of RM80,284, the amount
that can be reversed is only RM78,436√.
(13√ = 13 marks)

iii. How is COVID-19 likely to impact the impairment test of the assets above?
As a reminder, RA is the higher of VIU and FVLCTS.
COVID-19 will often affect both amounts.
Many entities start by estimating VIU.
This is because if VIU exceeds carrying value there is no need to determine FVLCTS
(and vice versa).
However, if VIU indicates an impairment loss, then FVLCCTS should also be estimated
– unless facts and circumstances indicate that FVLCts would not be materially higher
than VIU or it cannot be estimated reliably.
(2 MARKS on any 2 point )
(Total = 25 marks)

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