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- August 16, 2017 at 3:06 pm #402079
hi sir
i got a question about the identification of the lease
i’ve seen the lease lecture and professor said “substituion rights by supplier = no lease” and ” no substituotion rights by supplier = lease “.then i found out the relevent example question from technical article said:
“Under a contract between a local government authority (L) and a private sector provider (P), P provides L with 20 trucks to be used for refuse collection on behalf of L for a 6-year period. The trucks, which are owned by P, are specified in the contract. L determines how they are used in the refuse collection process. When the trucks are not in use, they are kept at L’s premises. L can use the trucks for another purposes if it so chooses. If a particular truck needs to be serviced or repaired, P is required to substitute a truck of the same type. Otherwise, and other than on default by L, P cannot retrieve the trucks during the six-year period.
Conclusion: The contract is a lease. L has the right to use the 20 trucks for six years which are identified and explicitly specified in the contract. Once delivered to L, the trucks can be substituted only when they need to be serviced or repaired.”why is that? it says P is required to substitute a truck. is it substitution rights by supplier and should be no lease ?
thank you very much sir appreciate it
August 16, 2017 at 3:35 pm #402087Hi,
The situation is a lease as even though the lessor can substitute the asset it is only if the asset is being serviced or repaired, so the lessee still has control over the use of the asset as it is just being replaced, possibly temporarily be an identical one.
Hope this helps.
Thanks
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