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Scope

Analysis

It depends. If the ordering process is in substance a dispatch right (e.g., the manufacturing lines are
only used to produce Manufacturing Co’s product on the basis, and only to the extent of, purchased
orders issued by Manufacturing Co during the contract period), the arrangement would contain a lease
since Manufacturer Co is making the relevant decisions that impact how and for what purpose the
manufacturing lines are used. In this scenario, (a) Manufacturer Co would receive substantially all of
the economic benefit from the exclusive use of the identified manufacturing lines, and (b)
Manufacturer Co would have the ability to determine when, whether, and how often the lines would be
used based on its purchase orders.

If, however, the ordering process is not in substance a dispatch right (i.e., Supplier Corp has flexibility
to determine the capacity at which to run the manufacturing lines when purchase orders are received),
Manufacturer Co may merely be ordering product, and the arrangement would not contain a lease
because Manufacturer Co would not be making relevant decisions that impact how and for what
purpose the asset is used.
EXAMPLE 2-13

Contract for use of an airplane over a three-year period

Sports Franchise enters into a contract with Supplier Corp for airplane transportation on an identified
asset for Sports Franchise’s players for a three-year period. Sports Franchise provides the dates of
travel and the arrival and departure locations at least one week in advance of each trip, which is not
predetermined in the contract terms. Sports Franchise will pay Supplier Corp a fixed fee per month for
use of the airplane.

Supplier Corp provides the airplane, crew, and pilot for each flight.

Which party has the right to control the use of the identified asset during the period of use?

Analysis

Sports Franchise has the right to control the asset because it can decide how and when the plane will
be utilized during the period of use. Although Supplier Corp can make operational decisions about the
flight plan, it is Sports Franchise who determines when the plane will fly. The frequency and distance
traveled are more relevant to the overall economic benefits to be derived from the airplane than the
specific routes of each individual trip.

In addition to the lease, the contract contains other nonlease components, such as the services
provided by the pilot and crew, fuel, maintenance, and parking the airplane when not in use. See LG
2.4 for further information on lease and nonlease components.

EXAMPLE 2-14

Contract for use of a grain storage facility

Customer Corp enters into a contract with Supplier Corp, which grants Customer Corp exclusive rights
to use a specific grain storage facility over a five-year period in the months of September and October.
During these months, Customer Corp has the right to decide which crops are placed in storage and
when to remove them. Supplier Corp provides the loading and unloading services for the warehouse

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