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Practical caseIFRS 16L2 · Intermediate

Analysis of a transport contract: lease or service, components, term and exemptions

5 documents9 tasks≈ 60 min
0 / 12 items completed
Standards
IFRS 16 — Leases
Assistance levelHelp on demand · assistance on request
  • Method: on request
  • Checklist: on request
  • Hints: withdrawn
  • Step-by-step work: shown

Case brief

Situation

Marval Distribution (a fictitious company), a food wholesaler, closes its accounts on 31 December and applies IFRS 16. At the end of 20X1, it enters into a two-lot framework contract with the carrier TransAlp Logistique (a fictitious company) and, with the lessor Tabloc (a fictitious company), a contract for tablets for its warehouse. You analyse these contracts and prepare the 20X2 year-end.

Your assignment

Using the documents provided, determine whether each lot of the framework contract contains a lease, allocate the consideration of lot A between its components, determine the lease term of lot A, then analyse the tablet contract, calculate its expense and record the 20X2 entry. One document is not useful.

Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.

Intermediate level: help remains available, on demand.

Method

  1. Read the brief and the assignment.
  2. Open each document and spot the relevant data.
  3. Carry out the work in the suggested order.
  4. Submit, then read the conclusion and the model answer.

File checklist

  • Open each piece (0 / 5 consulted) · to do
  • Sort the information in the pieces · to do
  • Carry out the work (0 / 12) · to do
  • Submit the file, then assess yourself · to do

Events

Chronology of the file

  1. December 1 20X1Inception date · Dated fact of the file

    Document 1

  2. December 15 20X1Inception date of the tablet contract · Dated fact of the file

    Document 4

  3. January 1 20X2Commencement date · Dated fact of the file

    Document 1

Documents

File documents

5 documents: open each one to read it.

Document 1Contract

Framework contract between Marval and TransAlp

Framework contract signed on 1 December 20X1 (inception date) between Marval and TransAlp, effective 1 January 20X2 (commencement date). Lot A, dedicated truck: the refrigerated truck registered FT-208-KM is specified in the contract; it is parked at Marval's depot and used only for Marval; Marval decides every day on routes, schedules, loads and whether or not to use the truck; TransAlp provides the driver, who follows Marval's instructions, and the maintenance; TransAlp may replace the truck only during a repair; carrying hazardous goods and exceeding the maximum load are prohibited. Consideration for lot A: 150,000 a year for the truck, the driver and the maintenance, payable in equal monthly instalments in arrears. Lot A is binding for 3 years; only Marval may terminate it at the end of year 3 against a termination payment of 150,000, otherwise it runs for a year 4; Marval may then extend it for 2 years at the market price then prevailing. Lot B, regional distribution: TransAlp delivers Marval's parcels with the vans of its 60-vehicle fleet, which it chooses and replaces at any time without Marval's agreement to optimise its rounds; the vans are parked at TransAlp's depots; price per delivery.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Inception dateDecember 1 20X1
Commencement dateJanuary 1 20X2
Annual consideration for lot A€150,000.00
Non-cancellable period of lot A3 years
Period covered by the termination option1 year
Termination payment€150,000.00
Period covered by the extension option2 years
TransAlp's van fleet60 units
Stand-alone price of the truck without services€96,000.00
Stand-alone price of the driver and maintenance€64,000.00
Usual truck renewal cycle4 years
Inception date of the tablet contractDecember 15 20X1
Number of tablets30 units
Value of a tablet when new€600.00
Current value of a reconditioned tablet€150.00
Monthly payment for the tablets€480.00
Term of the tablet contract24 months
Announced price increase for lot B3%

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort5

  • Framework contract between Marval and TransAlp

  • Observable stand-alone prices

  • Finance department memo

  • Tablet contract

  • Sales email from TransAlp

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      9 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.

      1. Task 1Analysis

        Does lot A contain a lease? Explain.

      2. Task 2Analysis

        Does lot B contain a lease? Explain.

      3. Task 3Calculation

        Allocate the annual consideration of lot A between its components.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Allocate the annual consideration of lot A between its components.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Annual consideration allocated to the non-lease components

      4. Task 4Analysis

        Determine the lease term of lot A.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Determine the lease term of lot A.

        1. years

        Checks

        • 0 / 1 step entered
        • Amounts readable

      5. Task 5Analysis

        Can the tablet contract qualify for an exemption?

      6. Task 6Calculation

        Calculate the total payments, the monthly expense and the 20X2 expense for the tablets.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the total payments, the monthly expense and the 20X2 expense for the tablets.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: 20X2 expense for the tablets

      7. Task 7Journal entries

        Which entry do you record for the tablets in 20X2?

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      8. Task 8Effects on the financial statements

        What is the impact of this entry on the 20X2 financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        5. Notes

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      9. Task 9Conclusion

        Write the conclusion.

      Workspace

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 12).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IFRS 16 §5
      • IFRS 16 §6
      • IFRS 16 §8
      • IFRS 16 §9
      • IFRS 16 §11
      • IFRS 16 §12
      • IFRS 16 §13
      • IFRS 16 §14
      • IFRS 16 §15
      • IFRS 16 §16
      • IFRS 16 §18
      • IFRS 16 §19
      • IFRS 16 §B3
      • IFRS 16 §B4
      • IFRS 16 §B5
      • IFRS 16 §B6
      • IFRS 16 §B7
      • IFRS 16 §B8
      • IFRS 16 §B9
      • IFRS 16 §B13
      • IFRS 16 §B14
      • IFRS 16 §B18
      • IFRS 16 §B21
      • IFRS 16 §B24
      • IFRS 16 §B27
      • IFRS 16 §B30
      • IFRS 16 §B32
      • IFRS 16 §B34
      • IFRS 16 §B35
      • IFRS 16 §B37
      • IFRS 16 §B40