ACCA Strategic Professional · Strategic Business Reporting (International) · Leases
Kappa Co contracts to use a specific vessel for three years. The contract fixes the route and cargo in advance, and Kappa has no say over these decisions. The vessel owner operates and maintains the vessel. Kappa obtains substantially all the economic benefits from using the vessel. Which statement is correct?
Where use decisions are predetermined, Kappa still controls the vessel's use if it designed the asset or its operation so that how and for what purpose it is used are predetermined. Owner maintenance, owner operation without Kappa's control, and legal title are not decisive tests under IFRS 16.
- AThe contract contains a lease if the decisions about how and for what purpose the vessel is used were predetermined by design and Kappa designed those aspectsCorrect
- BThe contract is not a lease because Kappa does not operate the vessel
- CThe contract is a lease only if Kappa takes legal title to the vessel at the end
- DThe contract is not a lease because the owner maintains the vessel
Explanation
When how and for what purpose the asset is used is predetermined, the customer can still control use if it has the right to operate the asset without the supplier changing instructions, or if it designed the asset in a way that predetermines use. Operation by the owner or maintenance does not alone prevent a lease. Legal title is irrelevant to identifying a lease.
Did you get it right without looking?
One question tells you little. A timed set on Leases shows your real accuracy, how long you take and where you lose marks.
More Leases questions
- Corvo Co sells a property to Delta Co for $2,400,000 and leases it back. The transfer is a sale. The property's fair value is $2,000,000. Ho…
- Zenith Co leases an office floor for 5 years with annual payments of $100,000 in arrears. After 2 years, the lessor and Zenith agree to exte…
- Delta Ltd leases out an investment building under a 10-year operating lease. Rent is $20,000 in year 1, rising by $2,000 each year (so $20,0…
- Brava Co sells a machine to a finance company for $1,500,000 and immediately leases it back. The transfer qualifies as a sale under IFRS 15.…
- Zeta Co enters a five-year contract with a logistics provider for the transport of goods. The provider owns a fleet of 40 identical trucks a…
- Brava Co contracts with a data centre operator for 500 terabytes of storage capacity in a facility for four years. The operator may at any t…