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ACCA Applied Skills · Financial Reporting · Leasing

Orion Co leases a vehicle for 4 years. Orion's depot manager may use the vehicle only for deliveries, but Orion decides which routes, when and how it is driven, and when it is used. The supplier has no substitution right. Orion's use is restricted to deliveries by the contract. Which statement is correct?

A lease exists because Orion has the right to direct how and for what purpose the vehicle is used within the contract's defined scope. Restricting use to deliveries merely defines the scope of the right; Orion still controls routes, timing and operation, and the supplier cannot substitute the asset.

  1. ANo lease exists because use is limited to deliveries
  2. BA lease exists only if the supplier agrees to Orion's route choice
  3. CA lease exists because Orion directs how and for what purpose the vehicle is used within the restricted scopeCorrect
  4. DA lease exists only if Orion pays variable rentals

Explanation

Contractual restrictions that define the scope of the right of use do not prevent a customer from having the right to direct use. Orion decides routes, timing and operation, so it directs use within the defined scope. Variability of payments is irrelevant.

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