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Scope

activities. During the other ten months each year, Supplier Corp has the right to determine how the
warehouse will be used.

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

Analysis

Customer Corp has the right to control the use of the identified asset during the period of use because
it has the power to determine how the warehouse will be used during the contractually defined usage
periods. The analysis should focus on the rights and economics of the use of the warehouse for the
specified usage periods (September and October). During the period of use, Customer Corp has the
rights to determine how much of a crop to place in storage, and the timing of placing and removing it
from storage. These rights are more significant to the economics of the use of the asset than the
loading and unloading services performed by Supplier Corp during the same period. Customer Corp
receives all of the economic benefit from use of the asset during those specified time periods. The total
period of time that the warehouse will be used to fulfil the contract is 10 months (2 months per year
over the five-year period).

2.4 Separating lease and nonlease components

Lease contracts may contain nonlease components that should be accounted for using other
accounting models (e.g., common area maintenance or services such as security). Only the
components that are integral to the right to use an underlying asset are considered lease components.
ASC 842 requires a reporting entity to allocate the contractual consideration between components of
the arrangement. Distinguishing between lease and nonlease components is also important because it
is not always appropriate to record assets and liabilities associated with the nonlease components.

Lessors and lessees follow different allocation methods among the components. For example, by
granting a customer the right to use an asset, a supplier is performing a revenue generating activity
and the recognition should be consistent with the framework in ASC 606. A customer using that asset
would not follow revenue recognition guidance.

This section discusses:

□ How to identify separate lease and nonlease components

□ How to allocate consideration to the components for a lessor and a lessee

If two or more arrangements are entered into at the same time, ASC 842-10-25-19 provides guidance
regarding whether those contracts should be considered together.

If contracts are combined based on the criteria in ASC 842-10-25-19, the conclusion regarding
whether the arrangement is or contains a lease could be different than assessing each contract
individually. Any component considered to be a lease element, regardless of whether it is in an
individual or combined contract, should be classified, recognized, and measured in accordance with
the guidance in ASC 842.

When analyzing a contract that contains multiple pieces of equipment, a customer should consider
whether the arrangement contains one lease component or more than one. See LG 2.5 for information

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