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Scope
Analysis
No. While the contract explicitly specifies the location where Manufacturing Corp’s inventory will be
stored, the asset is not identified because Warehousing Corp has a substantive substitution right.
Warehousing Corp has agreed to provide a specific amount of storage space within its warehouse at a
specific location. However, Warehousing Corp has the unilateral right to relocate Manufacturing
Corp’s inventory. It would benefit by relocating the customer’s inventory and can do so without
significant cost. As such, Warehousing Corp’s substitution rights are considered substantive, and there
is not an identified asset.
EXAMPLE 2-4
Supplier without substantive substitution rights
Assume the same facts as Example 2-3 except that Manufacturing Corp specified in its contract that its
materials must be stored at a specific temperature. Warehousing Corp only has one location in its
warehouse with a cooling system capable of maintaining the required temperatures based on the
layout of its HVAC system.
Does the contract contain an identified asset?
Analysis
Yes. The asset is identified because Warehousing Corp does not have a substantive substitution right.
Warehousing Corp has agreed to provide a specific level of capacity within its warehouse at a specific
location within the warehouse and does not have the unilateral right to relocate Manufacturing Corp’s
inventory without significant cost of installing additional cooling systems or modifying its HVAC
system.
2.3.2 Right to control the use of an identified asset over the period of use
Once a reporting entity concludes that the asset to be used is identified, the parties to the transaction
must then evaluate whether it controls the use of that asset throughout the period of use. An
arrangement is not a lease if it does not convey control over the use of an asset. A contract that does
not convey control to the customer, even when the asset to be used to fulfill the contract is explicitly
identified, is subject to the guidance applicable to a service or supply arrangement.
ASC 842-10-15-4 provides the requirements for a customer to have control over an asset.
ASC 842-10-15-4
To determine whether a contract conveys the right to control the use of an identified asset (see
paragraphs 842-10-15-17 through 15-26) for a period of time, an entity shall assess whether,
throughout the period of use, the customer has both of the following:
a. The right to obtain substantially all of the economic benefits from use of the identified asset (see
paragraphs 842-10-15-17 through 15-19)
b. The right to direct the use of the identified asset (see paragraphs 842-10-15-20 through 15-26).
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