ifrs 16

Hello Chris

A customer (C) enters into a contract with a road haulier (H) for the transportation of goods from London to Edinburgh on a specified truck. The truck is explicitly specified in the contract and H does not have substitution rights. The goods will occupy substantially all of the capacity of the truck. The contract specifies the goods to be transported on the truck and the dates of pickup and delivery.

H operates and maintains the truck and is responsible for the safe delivery of the goods. C is prohibited from hiring another haulier to transport the goods or operating the truck itself.

Conclusion: This contract does not contain a lease.
C does not have the right to control the use of the truck because C does not have the right to direct its use. C does not have the right to direct how and for what purpose the truck is used. How and for what purpose the truck will be used (i.e. the transportation of specified goods from London to Edinburgh within a specified timeframe) is predetermined in the contract. C has the same rights regarding the use of the truck as if it were one of many customers transporting goods using the truck.

1. IFRS 16 states that to have the right to direct the use of an identified asset, the relevant decisions about the use are predetermined.. How come this agreement is not a lease because it states that “The contract specifies the goods to be transported on the truck and the dates of pickup and delivery.”

Thanks in advance.