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Scope

2.3.1.1 Explicitly specified asset

If a contract explicitly specifies the asset to be used (e.g., by serial number or a specified floor of a
building), the contract contains an identified asset unless the supplier has substantive substitution
rights. See LG 2.3.1.4 for discussion of substitution rights.

2.3.1.2 Implicitly specified asset

A contract that does not explicitly specify an asset to be used to fulfill the contract may implicitly
specify the asset, for example, when the asset is made available for use. When only one asset can be
used to fulfill the contract (e.g., because of economic or legal factors or because the lessor has only one
asset available to perform under the contract) then the asset is considered implicitly specified.
Example 2-1 and Example 2-2 illustrate the identification of implicitly specified assets.

EXAMPLE 2-1

Bank data center contract
Commercial Bank enters into a lease for a portion of its data center with Supplier Corp. The lease
contract does not explicitly specify the equipment to be used to fulfill the contract; however, as a result
of security measures in place for its customer data, Commercial Bank imposes specific restrictions on
the equipment to be used. Although Supplier Corp has multiple data centers that are interchangeable
and can service multiple customers at one time, the arrangement with Commercial Bank specifies the
type of equipment to be used to fulfill its contract and imposes restrictions on access and substitution
for the duration of the contract.
Does the contract specify an asset to be used to fulfill the contract?

Analysis

Yes. Although the assets used to fulfill the contract are not explicitly specified, the assets are implicitly
specified as a result of the contractual requirements and specifications mandated by Commercial
Bank.

EXAMPLE 2-2
Automobile hood ornament contract

Supplier Corp enters into a contract to provide Automobile Manufacturer with hood ornaments for its
cars. The contract does not explicitly specify the equipment to be used to fulfill the contract. Supplier
Corp designs and custom builds a die in the shape of Automobile Manufacturer’s logo specifically to
produce the hood ornaments. Automobile Manufacturer is involved in ensuring the machine meets
their specific standards.

Does the contract specify an asset to be used to fulfill the contract?

Analysis

Although the die is not explicitly specified in the arrangement, the contract is reliant on the die and
therefore it is implicitly specified. While Supplier Corp is not contractually required to use a specific
die, it is not feasible to utilize a different die. Therefore, the asset used to fulfill the contract would be
the specialized die.

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