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Hi
I need some help understanding the answer to the following question in the BPP FR Practice Kit (2020/2021) please:
Identify whether the following statements do or do not indicate that a contract is a lease under IFRS 16 Leases
a. The lessee obtains substantially all of the economic benefits from use of the asset
b. Ownership of the asset is transferred at the end of the lease term
c. The contract relates to an identified asset
d. If it suits them to do so, the lessor can substitute an identical asset
The book says that a, b and c indicate leases and d does not.
When I was answering it I said a and c indicate a lease and b and d do not.
Could someone please explain why the answer is what it is?
Thank you
A contract is, or 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.
D is not a lease as because of the option to substitute the asset then there is no identified asset and hence no lease.
C will be a lease as we have control of the asset for a period of time.
Thanks
Thanks for ur reply.
Yes I understand why C is a lease and why D is not. However this is one of those selection questions where you have to select which ones indicate a lease and which ones dont. I said a and c indicate leases and b and d do not, but in the answer it says a, b and c indicate leases and that d is the only one that is not a lease. I dont really get why B indicates a lease though, that was my question.Thanks
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