ACCOUNTING
ca,,ch10,case study1

ca,,ch10,case study1 - Case Study 1 Identification of...

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Case Study 1 Identification of leases For the following arrangements, discuss whether they are ‘in substance’ lease transactions, and thus fall under the ambit of AASB 117. 1. Entity A leases an asset to Entity B, and obtains a non-recourse loan from a financial institution using the lease rentals and asset as collateral. Entity A sells the asset subject to the lease and the loan to a trustee, and leases the same asset back. 2. Entity A enters into an arrangement to buy petroleum products from Entity B. The products are produced in a refinery built and operated by Entity B on a site owned by Entity A. Although Entity B could provide the products from other refineries which it owns, it is not practical to do so. Entity B retains the right to sell products produced by the refinery to other customers but there is only a remote possibility that it will do so. The arrangement requires Entity A to make both fixed unavoidable payments and variable payments based on input costs at a target level of efficiency to Entity B.
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