You are required to answer all parts (i.e. A, B and C). You may use the annuity and present
value tables attached to the assignment OR you may use your financial calculators to calculate
annuity and present value factors. Both approaches are acceptable.
PART A (8 marks)
Bushman Ltd enters into a contract with Lessor Ltd for the use of a ship for one year. The ship
is to be used to transport wood from central Queensland to the port of Brisbane. Lessor does
not have substitution rights.
The contract specifies a maximum distance that the ship can be used. Bushman Ltd is
responsible for operating the ship from central Queensland to the port of Brisbane and is able
to choose the details of the journeys (including speed, route and rest stops) within the
parameters of the contract. Bushman Ltd does not have the right to continue using the trip
after the specified duration is complete.
REQUIRED:
Identify whether a lease exists for Bushman Ltd in accordance with the provisions of AASB 16
‘Leases’. Provide any necessary explanations to support your answer.
Part A
A contract contains a lease in accordance with AASB 16, if it satisfied the following two conditions:
(1) An identified asset; and
YES – ship is explicitly specified in the contact and Supplier cannot substitute that specified ship.
(2) The lease conveys, to the Bushman Ltd, the right to control the use of that identified asset for a period of time (a specific distance).
Rights exist when the customer has a right:
(a) to obtain economic benefits from use of the identified asset (benefit); and
YES – the Bushman Ltd occupies substantially all of the capacity of the ship, thus preventing other parties from obtaining the economic benefits from use of the ship
(b) to direct the use of that asset (power).
YES - the Bushman Ltd is able to choose the details of the journeys (including speed, route and rest stops) within the parameters of the contract, which are already included in the contract.
CONCLUSION – YES, the contract does contain a lease.