On 1 January 2020, DRD entered a contract with Grammary Bhd, for a 2-year rental of 3 printers, a cutting system, and a copy machine. The machines will be returned to Grammary Bhd at the end of the 2 years contract. The economic life of all the machines is 5 years. DRD will pay monthly payments of RM5,000 for the following services: RM / Per month Rental of all machines 4,700 Maintenance of all machines 200 Reimburse Grammary Bhd's administration costs associated with the contract 100 Based on reviews of market information, DRD could have bought one printer for RM60,000, a cutting system for RM40,000 and a copy machine for RM45,000 if they were purchased on a cash basis. A third-party company provides similar maintenance services for RM30 per machine per month. Second transaction: DRD and Gracita A non-cancellable agreement was entered between DRD and Gracita Bhd for 6 years, commencing on 1 January 2020 for a rental of plant and machinery located in Pengering, Kedah. Gracita Bhd has several heavy plant and machinery for rental, and they typically rent them on the operating lease basis and no finance lease is given. The fair value of the plant and machinery rented by DRD was RM1,000,000, and they are expected to have an economic life of 10 years. DRD plans to use the plant and machinery for only 6 years. The annual rental of the plant and machinery is RM170,000 per annum, payable in arrears as of 31 December each year. The cost paid to the agent who manages the arrangement, which consists of a commission of RM50,000, was borne by Gracita Bhd. Points of discussions: Imagine yourself as a team from the accounting department that needs to submit this report to your management team, propose the accounting standards and accounting treatments to be applied by DRD Hillux Bhd for the two transactions above. More specifically: 3) In relation to initial recognition: a) How would the initial recognition of the above transactions be reported, and why? b) What factors are used to determine the cost that can be capitalized and those that are expensed? 7) Would the reporting by DRD Hillux Bhd differ from those reported by Grammary Bhd and Gracita Bhd, and why (why not)?
I Want The Answer For Question 3 & 7 Only, Please!!!!
First transaction: DRD and Grammary
On 1 January 2020, DRD entered a contract with Grammary Bhd, for a 2-year rental of 3 printers, a cutting system, and a copy machine. The machines will be returned to Grammary Bhd at the end of the 2 years contract. The economic life of all the machines is 5 years.
DRD will pay monthly payments of RM5,000 for the following services:
RM / Per month
Rental of all machines 4,700
Maintenance of all machines 200
Reimburse Grammary Bhd's administration costs associated with the contract 100
Based on reviews of market information, DRD could have bought one printer for RM60,000, a cutting system for RM40,000 and a copy machine for RM45,000 if they were purchased on a cash basis. A third-party company provides similar maintenance services for RM30 per machine per month.
Second transaction: DRD and Gracita
A non-cancellable agreement was entered between DRD and Gracita Bhd for 6 years, commencing on 1 January 2020 for a rental of plant and machinery located in Pengering, Kedah. Gracita Bhd has several heavy plant and machinery for rental, and they typically rent them on the operating lease basis and no finance lease is given. The fair value of the plant and machinery rented by DRD was RM1,000,000, and they are expected to have an economic life of 10 years. DRD plans to use the plant and machinery for only 6 years. The annual rental of the plant and machinery is RM170,000 per annum, payable in arrears as of 31 December each year. The cost paid to the agent who manages the arrangement, which consists of a commission of RM50,000, was borne by Gracita Bhd.
Points of discussions:
Imagine yourself as a team from the accounting department that needs to submit this report to your management team, propose the accounting standards and accounting treatments to be applied by DRD Hillux Bhd for the two transactions above. More specifically:
3) In relation to initial recognition:
a) How would the initial recognition of the above transactions be reported, and why?
b) What factors are used to determine the cost that can be capitalized and those that
are expensed?
7) Would the reporting by DRD Hillux Bhd differ from those reported by Grammary Bhd and
Gracita Bhd, and why (why not)?
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