The case: IFRS 16 Lease of a ship
Customer enters into a contract with Supplier for the use of a specified ship for a five-year period. The ship is explicitly specified in the contract and Supplier does not have substitution rights.
Customer decides what cargo will be transported, and whether, when and to which ports the ship will sail, throughout the five-year period of use, subject to restrictions specified in the contract. Those restrictions prevent Customer from sailing the ship into waters at a high risk of piracy or carrying hazardous materials as cargo.
Supplier operates and maintains the ship and is responsible for the safe passage of the cargo on board the ship.
Customer is prohibited from hiring another operator for the ship of the contract or operating the ship itself during the term of the contract.
The contract contains a lease. Customer has the right to use the ship for five years. IFRS 16 Lease of a ship
IFRS 16 Lease of a ship
There is an identified asset. The ship is explicitly specified in the contract, and Supplier does not have the right to substitute that specified ship.
Customer has the right to control the use of the ship throughout the five-year period of use because:
Although the operation and maintenance of the ship are essential to its efficient use, Supplier’s decisions in this regard do not give it the right to direct how and for what purpose the ship is used. Instead, Supplier’s decisions are dependent upon Customer’s decisions about how and for what purpose the ship is used.