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Scope

use of the underlying equipment, the customer should consider the economics of the supplier selling
the scrap metal in addition to the manufactured parts.

In some industries, there are unique attributes associated with an asset’s operation that may or may
not be considered output of the asset but need to be considered for purposes of the economic benefit
test. For example, renewable energy credits (RECs) produced by a solar generation facility have
economic value and should be considered an economic output in the leasing analysis because they are
a benefit relating to the use of the asset. Since the RECs are dependent on the output of a specified
power plant, they should be factored into the benefits derived from operation of that asset.

Question 2-2

If an owner of a solar facility sells its energy production and RECs to separate parties, which party has
the right to obtain substantially all of the economic benefits of the solar facility?

PwC response
It depends. If both the energy production and the RECs are deemed to be more than insignificant to
the total economics, then neither party would have the right to obtain substantially all of the economic
benefits and lease accounting would not apply.

Some arrangements require the customer to share a portion of the cash flows derived from the use of
the asset with the supplier or another party. These arrangements do not prevent the customer from
having the right to the economic benefits derived from the asset; they are additional consideration for
the use of the asset. A common example is a payment from the customer to the supplier based on a
percentage of the sales derived from use of the asset.

Agreements for the use of assets for which a customer cannot derive economic benefits on its own
without other resources may still meet the definition of a lease if the customer meets the criteria
necessary to direct the use of the asset. For example, a contract for the use of an asset of such a
specialized nature that the supplier must operate it may still be deemed a lease if the customer has the
ability to dictate when it runs, or has the ability to let it sit idle. In this case, the customer retains the
right to direct the use of the asset during the term of the arrangement and can effectively prevent
another party from obtaining the economic benefits.

Unit of account

In order to assess whether a customer obtains substantially all of the economic benefits from the use of
an identified asset, the customer must first identify the parties that have the right to use the asset. As
discussed in LG 2.3.2.1, certain agreements provide the customer with exclusive use of the identified
asset during the period of use, while other arrangements provide for use of the asset by multiple
parties. Determining whether more than one party has the right to use an identified asset requires
identification of the unit of account. Identifying the unit of account may be straight forward for some
arrangements. However, for certain contracts, like land easements, this determination may be more
challenging.

Example 2-6 and Example 2-7 illustrate how to identify the unit of account in certain land easement
agreements.

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