Ben started its business in Bangsar many years ago, opened Ben Gym Centre. The Centre runs various fitness classes including Zumba, Aero-dance and Salsation. Due to several demands, the Centre has recently built a small work-out area at a corner of the Gym Centre. • On 1 January 2020, the Gym Centre had entered into a leasing agreement with Metro Bhd, for an electronic gym equipment. The lease term was for 5 years and neither to be cancelled nor renewed. At the end of the lease period, the title of the equipment was to be passed to Gym Centre and every year Gym Centre was required to make equal rental payment of RM4,000, beginning on 31 December 2020. ● The lease agreement gave rise to an initial direct cost of RM2,500 that has to be borne by Metro Bhd. The useful life of the equipment was estimated to be 5 years and its fair value at 1 January 2020 was RM9,000. It is the policy of Ben Gym Centre to depreciate all equipment at its Centre using a straight-line depreciation method. The implicit interest rate in lease was 10% per annum and assume that paragraph 22-49 of MFRS 16 is applicable in this case. Required: (i) Briefly explain how Ben Gym Centre shall treat the lease equipment. (ii) Prepare the relevant journal entries for the year 2020 in the books of Ben Gym Centre. (iii) Show the extract of the Statement of Profit and Loss and Other Comprehensive Income for Ben Gym Centre for the year ended 31 December 2020.
Ben started its business in Bangsar many years ago, opened Ben Gym Centre. The Centre runs various fitness classes including Zumba, Aero-dance and Salsation. Due to several demands, the Centre has recently built a small work-out area at a corner of the Gym Centre. • On 1 January 2020, the Gym Centre had entered into a leasing agreement with Metro Bhd, for an electronic gym equipment. The lease term was for 5 years and neither to be cancelled nor renewed. At the end of the lease period, the title of the equipment was to be passed to Gym Centre and every year Gym Centre was required to make equal rental payment of RM4,000, beginning on 31 December 2020. ● The lease agreement gave rise to an initial direct cost of RM2,500 that has to be borne by Metro Bhd. The useful life of the equipment was estimated to be 5 years and its fair value at 1 January 2020 was RM9,000. It is the policy of Ben Gym Centre to depreciate all equipment at its Centre using a straight-line depreciation method. The implicit interest rate in lease was 10% per annum and assume that paragraph 22-49 of MFRS 16 is applicable in this case. Required: (i) Briefly explain how Ben Gym Centre shall treat the lease equipment. (ii) Prepare the relevant journal entries for the year 2020 in the books of Ben Gym Centre. (iii) Show the extract of the Statement of Profit and Loss and Other Comprehensive Income for Ben Gym Centre for the year ended 31 December 2020.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Ben started its business in Bangsar many years ago, opened Ben Gym Centre. The Centre runs
various fitness classes including Zumba, Aero-dance and Salsation. Due to several demands,
the Centre has recently built a small work-out area at a corner of the Gym Centre.
●
On 1 January 2020, the Gym Centre had entered into a leasing agreement with Metro
Bhd, for an electronic gym equipment.
●
The lease term was for 5 years and neither to be cancelled nor renewed. At the end of
the lease period, the title of the equipment was to be passed to Gym Centre and every
year Gym Centre was required to make equal rental payment of RM4,000, beginning
on 31 December 2020.
●
The lease agreement gave rise to an initial direct cost of RM2,500 that has to be borne
by Metro Bhd. The useful life of the equipment was estimated to be 5 years and its fair
value at 1 January 2020 was RM9,000.
It is the policy of Ben Gym Centre to depreciate all equipment at its Centre using a
straight-line depreciation method. The implicit interest rate in lease was 10% per annum
and assume that paragraph 22-49 of MFRS 16 is applicable in this case.
Required:
(i)
Briefly explain how Ben Gym Centre shall treat the lease equipment.
(ii)
Prepare the relevant journal entries for the year 2020 in the books of Ben Gym Centre.
(iii)
Show the extract of the Statement of Profit and Loss and Other Comprehensive Income
for Ben Gym Centre for the year ended 31 December 2020.
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