ACCA Applied Skills · Financial Reporting · Leasing
Zenith Co enters into a contract with a logistics provider for the use of 10 specific warehouse units identified in the contract for five years. Zenith decides how and for what purpose the units are used throughout the period, and the provider has no right to substitute them. Which statement is correct under IFRS 16?
The contract contains a lease because Zenith has the right to control the use of identified warehouse units for a period of time. The assets are specified, there is no substitution right, and Zenith directs their use. Legal ownership and whether payments are fixed do not determine lease identification.
- AThe contract contains a lease because Zenith controls the use of an identified assetCorrect
- BThe contract is a service contract because the provider retains legal title to the units
- CThe contract contains a lease only if the payments are fixed in amount
- DThe contract contains a lease only if the term is longer than five years
Explanation
A contract contains a lease if it conveys the right to control the use of an identified asset for a period in exchange for consideration. Here the units are specified, there is no substitution right, and Zenith directs their use. Legal title is irrelevant to lease identification, and payments need not be fixed.
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