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

Zeta plc contracts with a logistics provider for the use of 10 specific rail wagons, each identified by serial number, for three years. Zeta decides where the wagons are sent and what goods are carried, and the provider has no right to substitute them. Which conclusion is correct under IFRS 16?

The contract contains a lease. The wagons are identified, the supplier cannot substitute them, and Zeta directs how and for what purpose they are used while obtaining the economic benefits. Legal ownership and whether payments are fixed or variable do not determine whether a lease exists under IFRS 16.

  1. AThe contract contains a lease because Zeta controls the use of identified assets for a period of timeCorrect
  2. BThe contract is a service contract because the provider owns the wagons
  3. CThe contract contains a lease only if the legal title passes to Zeta at the end of three years
  4. DThe contract contains a lease only if Zeta pays a fixed amount rather than a variable amount

Explanation

A lease exists where a contract conveys the right to control the use of an identified asset for a period in exchange for consideration. The wagons are identified, there is no substantive substitution right, and Zeta directs their use and obtains substantially all benefits. Ownership and the payment structure are not tests of whether a lease exists.

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