ACCA Strategic Professional · Strategic Business Reporting (International) · Leases

Omega Co is a lessee. It signs a contract to use 30% of the capacity of a pipeline owned by Sigma Co for four years. The capacity is not physically distinct from the rest of the pipeline. Omega also has a separate contract to use a physically distinct floor of an office building owned by Sigma. Which assessment is correct under IFRS 16?

The office floor is a lease, but the pipeline capacity is not. A portion of an asset is identified only if physically distinct or if it represents substantially all of the asset's capacity. A 30% non-distinct share of a pipeline fails, whereas a distinct floor is an identified asset.

1. ABoth are leases because Omega uses part of each asset
2. BNeither is a lease because Sigma owns both assets
3. CThe pipeline capacity is a lease, because it is a quantity of the pipeline, but the office floor is not
4. DThe office floor is a lease; the pipeline capacity is not, unless the capacity represents substantially all of the pipeline's capacityCorrect