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Summary
In recent years arrangements have developed that do not take the legal form of a lease but that convey rights to use items (such as an item of property plant and equipment) for agreed periods of time in return for a payment or series of payments.
Examples of such arrangements include:
- • outsourcing arrangements;
- • telecommunication contracts that provide rights to capacity;
- • take-or-pay and similar contracts, in which purchasers must make specified payments regardless of whether they take delivery of the contracted products or services; and
- • service concession arrangements, in which one entity provide the use of an item of infrastructure to another entity.
The main proposal in the draft Interpretation is that an arrangement that meets all three of the following criteria is, or contains, a lease that should be accounted for in accordance with IAS 17, Leases:
- (a) the arrangement depends upon a specific item. The item need not be explicitly
identified by the contractual provisions of the arrangement. Rather it may be
implicitly identified because it is not economically feasible or practical for the
supplier to fulfil the arrangement by providing use of alternative items.
- (b) the arrangement conveys a right to use the item for an agreed period of time
such that the purchaser is able to exclude others from using the item.
- (c) payments under the arrangement are made for the time that the item is made
available for use rather than for actual use of the item.
The draft Interpretation also explains that an arrangement in which there is only a
remote possibility that parties other than the purchaser will take more than an
insignificant amount of the output produced by an item (eg under a take-or-pay power
contract) meets the second of the criteria above. Accordingly such arrangements can
contain leases.
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