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Scope
EXAMPLE 2-10
Contract to purchase electricity on a full-time basis
Assume the same facts as Example 2-9 except Customer Corp has contracted for power on a full-time
basis, instead of on-demand.
Which party has the right to control the use of the identified asset during the period of use?
Analysis
The contract is for full-time operation; therefore, how and when the asset is to be used was mutually
predetermined by both parties. During the term of the contract, the economics are most influenced by
the operational and maintenance decisions. Since the day-to-day operations are under the control of
Supplier Corp, it has the ability to direct the use of the asset that most significantly impacts the
economic benefits to be derived from the equipment. As a result, Supplier Corp controls the identified
asset during the term of the contract.
EXAMPLE 2-11
Contract for the use of gas pipelines
Customer Inc enters into a five-year agreement with Supplier LP for 100% of the capacity of a specified
natural gas pipeline. Supplier LP operates and maintains the pipeline. Customer Inc pays a fixed
capacity charge each month. When Customer Inc chooses to use the capacity, it also pays a variable
amount for each unit of natural gas transported. Supplier LP cannot use the pipeline capacity to
transport natural gas for any other customer.
Which party has the right to control the use of the identified asset during the period of use?
Analysis
Customer Inc has the right to control the use of the identified pipeline during the period of use.
Customer Inc makes the relevant decisions about how and for what purpose the pipeline will be used
by determining when and how much natural gas will be transported through the pipeline. Customer
Inc also has the right to obtain substantially all of the economic benefits from the transportation of
natural gas through the pipeline because no one else can use the pipeline during the period of use.
EXAMPLE 2-12
Contract for use of manufacturing lines
Manufacturing Co enters into an arrangement with Supplier Corp for use of Supplier Corp’s
manufacturing lines over a five-year period. Manufacturing Co notifies Supplier Corp when the lines
are to be used based on Manufacturer Co’s production needs. Supplier Corp does not have substantive
substitution rights and cannot use the manufacturing lines for any other purpose.
Which party has the right to control the use of the identified asset during the period of use?
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