Suggested Solution:

1. According to MFRS16 Leases, a contract is, or contains, a lease if:

 The contract conveys an identified asset. In this case, the vehicle has been
explicitly specified in the contract
 The lessor’s substitution right is not substantive. Though lessor has the practical
ability to substitute the vehicle as the lessor has similar vehicle that meet the
requirement of the lessee but, the lessor can only substitute if the identifiable
vehicle is not working properly.
 The lessee has the right to use the identifiable assets. In the case, CSB has the
right to right to control the use as it has the right to decide how the vehicle is used,
when or whether the vehicle is used, where the vehicle goes and what the vehicle
is used for
 The lessee has the right to obtain substantially all of the economic benefits from
use of the identified asset

Therefore, the contract contains a lease arrangement

(10 x 0.5 = 5m)

2. Step 1: Determine ROU & lease liability (4.5%,4yrs=3.588)

Year
0 10,000
1 12,000
2 12,000
3 12,000
4 12,000
NPV (1-3) = PV 43,056
MLP
Deposit 10,000
ROU 53,056

Step 2: lease interest

Year Bal b/d Interest Total Instalment Bal c/d

(4.5%) Outstanding
31/12/2017 43,056 1,938 44,994 12,000 32,994
31/12/2018 32,994 1,485 34,479 12,000 22,479
31/12/2019 22,479 1,012 23,491 12,000 11,491
31/12/2020 11,491 509 12,000 12,000 0

3. Journal entries 31/12/2017

1 Jan 2017
Dr Right of use asset (53,056+5000) 58,056
Cr Lease Liability (43,056+10,000) 53,056
Cr Bank 5,000
(To recognized lease liability)
Dr Lease liability 10,000
Cr Bank 10,000
(to recognized rental payment in advance)
Alternatively;
 Dr Right of use asset (53,056+5000) 58,056
Cr Lease Liability (43,056 +10,000-10,000) 43,056
Cr Bank (5,000 + 10,000) 15,00
Alternatively;
Dr Right of use asset 53,056
Cr Lease Liability (43,056+10,000) 53,056
Dr Lease liability 10,000
Cr Bank 10,000
Dr Right of use asset 5,000
Cr Bank 5,000
31 Dec 2017
Dr Depreciation (58,056/4) 14,514
Cr Acc Depreciation 13,264

Dr Finance cost/lease interest (43,056 x 4.5%) 1,938

Dr Lease liability 10,062
Cr Bank 12,000
(To recognized the payment at the end of the year)
Alternatively;
Dr Finance cost (RM43,056 x 4.5%) 1,938
Cr Lease liability 1,938
Dr lease Liability 12,000
Cr Bank 12,000
(To recognized the payment at the end of the year)

Casuarina – recognised rental income

Dr Bank 70,000
Cr Rental Income 70,000
Dr Depreciation (500,000/10) 50,000
Cr Acc depreciation 50,000
( 20 x ½ = 5m)

4. An extract of Statement of Profit or Loss for the year ended 31 December 2018
RM
Rental income 70,000
Depreciation (50,000+14,514) (64,514)OF
Finance cost (32944 X 4.5%) (1,485)

An extract of Statement of financial position as at 31 December 2018

Non-current asset
PPE (500,000 – 100,000) 400,000
Right of use asset (58,056 – (14,514x2)) 29,028

Non-current liability
Lease liability (Bal c/d next period) 11,491
Current Liability
Lease Liability (22,479-11,491) or (12,000 – 1012) 10,988

Notes on the lease:

Future lease payment (12,000 x 2) 24,000
Less: Unallocated interest (22,479-24,000) (1,521)
( 10 x ½ = 5m)
Question 2
a.
i. Carrying amount for each asset as at 31 December 2016.

Chip Chip Chip frying Goodwill Total

blanching washing & machine
machine peeling
machine
CA as at 1 January 2014 60,000 20,000 30,000 20,000 130,000
2014 DEPN (6,000) (2,000) (3,000) - (11,000)
CA 54,000 18,000 27,000 20,000 119,000
2015 Depn (5,400) (1,800) (2,700) - (9,900)
CA 48,600 16,200 24,300 20,000 109,100
2016DEpn (4,860) (1,620) (2,430) - (8,910)
CA 43,740 14,580 21,870 20,000 100,190
RA = the higher of VIU and - - -
FVLCTS
VIU 57,000
FVLCTS (60,000 – 2,000) 58,000
Therefore, RA 58,000
IL (100,190 – 58,000) 42 190
Impairment loss allocation:
Allocate first to Goodwill (20,000)
Balance (42,190-20,000) 22,190
Balance allocate to other (12,104) (4,035) (6,051)
assets i.e (43,740/ 80,190 x
22,190= 12,104)
New CA as at 31 December 31,636 10,545 15,819 - 58,000
2016 (CAWI)

There is an impairment loss of RM42,190 because the carrying amount , is higher than
recoverable amount, RM58,000. (Recoverable amount is the higher of fair value less cost to
sell , RM58,000 [ 60,000 – 2,000 ] and value in use , RM57,000).
There is also goodwill of RM20,000 in the CGU. Because the impairment loss of RM42,190
is greater than the amount of goodwill, RM20,000. Therefore, allocate first against carrying
value of goodwill, the excess of RM22,190 is to be allocated on a pro rata basis of carrying
amount of other assets in CGU

The carrying amount after impairment loss as at 31 December 2016 is RM58,000.

workings:
total CA= 43740+14580+21870=80190
43,740 / 80,190 x 22,190 = 12,104
14,580 / 80,190 x 22,190 = 4,035
21,870 / 80,190 x 22,190 = 6,051
Carrying amount for each asset as at 31 December 2018.
 Chip Chip & Chip Total
blanching washing frying
machine peeling machine
machine
CA as at 1 January 2017 31,636 10,545 15,819 58,000
2017 Depn (3,164) (1,055) (1,582) (5,801)
CA 28,472 9,490 14,237 52,199
2018 depn (2,847) (949) (1,424) (5,220)
CA 25,625 8,541 12,813 46,979
RA - - - 50,000
RIL i.e (25,625 /46,979 x 1,648 549 824 (RA-CA)
3,021) 3,021
CA as at 31 December 2018 27,273of 9,090of 13,637of 50,000

Workings for reversal of impairment loss:

The carrying amount without impairment (CAWOI)
The carrying amount as at 31 December 2016, (RM100,190 – 20,000) = RM80,190
Less: Accumulated depreciation for 2017 & 2018 (RM8,019 & 7,217) = RM15,236
The carrying amount as at 31 December 2018, RM64,954.
Reversal amount
The lower of RA, RM50,000 and CA w/o impairment, RM64,954 of = RM50,000
Therefore, the reversal amount is RM3,021.
Workings:
25,625/46,979 x 3,021 = 1,648
8,541/46,979 x 3,021 = 549
12,813/46,979 x 3,021 = 824

I. Property, plant and equipment measured at cost (non-revalued asset)

The impairment loss for non-revalued asset is recognised immediately in the profit or
loss.
II. Property, plant and equipment measured at fair value (revalued asset)
However, the impairment loss on a revalued asset shall be treated as revaluation decrease
in accordance with MFRS116. Any impairment loss shall first be recognized in other
comprehensive income (OCI) and then is written off against the asset revaluation reserve
balance (if any) . Any balance of the impairment loss (if any) is recognised in the profit or
loss as an expense.

(Total: 20 marks)