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Question 1:
Sycamore Bhd arranges to lease a machine from Oak Bhd starting on 1 July x3. The terms of the lease are that Sycamore will make three annual payments to Oak of RM30,000 each. The first payment will be made on 1 July x3. The purchase price of the machine for cash, and the cost to Oak is RM74,746. The interest rate implicit in the lease is 22%. Each company makes up its accounts to 30 June.

a) Explain the difference between a finance lease and an operating lease. State into which category the above arrangements falls and explain why. b) Assuming that the lease is a finance lease, prepare the income statement and balance entries in the book of Sycamore as far as the information permits.

Question 2:
Chamomile entered into a lease agreement to acquire a property on 1.1.x3. Chamomile would pay RM240,000 annual instalment in advance. The lease term was 20 years and the remaining economic life of the building was estimated to be 20 years. At the end of the lease term the land would revert to the lessor. Fair value of land and building was estimated to be RM1 million and Rm2 million respectively.

Discuss the accounting treatment of the lease for Chamomile.

Question 3:
Given below is the extract of the profit and loss account of Ayer Bhd, a listed company. Profit for the year ended 30 June x5.
Profit before taxation700,000
Taxation (30%)(200,000)
Dividends paid – ordinary shares100,000
- preference shares 35,000

The following information is also provided:
a) Issued share capital on 1 July x4 comprises 500,000 7% preference shares of RM1 each and 2 million ordinary shares of 50 cents each. b) Loan capital outstanding on 1 July x4 was RM500,000 10% convertible debentures (convertible into 200 ordinary shares per RM100 debenture). c) Changes in capital structure during the year...
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