Page 416 - SBR Integrated Workbook STUDENT S18-J19

Chapter 25

Chapter 8

Example 1

Identifying a lease

IFRS 16 Leases says that a contract contains a lease if it 'conveys the right
to control the use of an identified asset for a period of time in exchange
for consideration' (IFRS 16, para 9). When deciding if a contract contains a
lease, the customer must assess whether they have:

 The right to substantially all of the identified asset’s economic benefits,
and

 The right to direct the identified asset’s use.

The supplier has the right to use any lorry that matches the contract
specification, so the contract does not cover an identified asset. Moreover, the
supplier has the ability in practice to substitute a lorry because they are stored
at their premises.

The supplier, rather than Saga, has the right to direct the assets’ use because
they select which lorry is used for each delivery. The supplier can use idle
lorries for other deliveries, and so Saga is not obtaining substantially all of
their economic benefits during the contract duration.

As such, the contract does not contain a lease.

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