BBFA2013: PAC Bhd (PAC) entered into a three-year contract to obtain three lorries on 1 April 2017: Financial Accounting Framework Home Work, TARC, Malaysia


Tunku Abdul Rahman College (TARC)

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BBFA2013: Financial Accounting Framework Home Work

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Question 2 (payment in arrears with purchase option)

PAC Bhd (PAC) entered into a three-year contract to obtain three lorries on 1 April 2017. The contract met the IFRS 16 criteria to be classified as a lease.

According to the agreement PAC will pay a deposit of RM9.000 on 1 April 2017 and two annual payments of RM24.000 on 31 March 2018. 2019 and a final payment of RM20.391 on 31 March 2020. PAC has an option to purchase the lorries at a total sum of RM10.000 at the end of the lease term. It is reasonably certain that PAC will exercise this option.

The lorries have a remaining useful life of 5 years.

The interest rate implicit in the lease is 25%.


(a) Show the calculation of initial measurement of the lease liability. initial measurement of the right-of-use asset and journal entries for initial measurement

(b) Calculate the outstanding balance of the lease liability at the end of each year.

(c) Prepare the financial statements extracts for PAC Bhd for the years ending 31 March 2018 to 2020 in accordance with IFRS 16.

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