And the expected residual value the end that time

On 1 July 2015 Malaysian Transport Ltd entered into a non-cancellable agreement with the Zi-Lease Company to lease three trucks for five years. The trucks were not part of Zi-Lease’s inventory. The lease agreement requires Malaysian Transport to make half-yearly payments of $ 140000 on 1 July and 1 January each year, commencing on 1 July 2015. The residual value is unguaranteed and there is no bargain purchase option. The interest rate implicit in the lease agreement is 4.5% per half-year. Under the lease agreement, Malaysian Transport is responsible for the maintenance and insurance of the trucks. The fair value of the trucks at the inception of the lease was $ 1275 000, their estimated useful life is seven years, and the expected residual value at the end of that time is $500 000. Malaysian Transport Ltd incurred legal costs of $ 5000 in drawing up the lease.

Required

Question 2 (20%) ( Word count not to exceed 500 word limit)

Outline the accounting treatment of leases by lessees proposed in the IASB Exposure Draft ‘ Leases’ 2010. Are these proposals likely to overcome the problems experienced with the present finance/operating lease distinction? Explain