Leases in service areas

[waletilahun]

Leases in service areas
Dear Marek
I would like to know cases where service related contracts may contain a lease and to be treated under IFRS 16?
Specific scenario
Telecom gateway access contract
Power acquisition outsourcing contract and
OPGW or Optical Ground Wire Access contract

Thanks

[Marek Muc]

Dear Marek

This is IFRS Community, not Marek's inbox

Sure, let's discuss these scenarios, please describe them.

[waletilahun]

My company entered a contract to get 24/7 power access to its network infrastructures for 10 years. The supply of the power kilowatt depends on the site power capacity and requirement but limited to a maximum supply of 300kw. The access of power to the site /infrastructure/ can be either on-grid (where power cable access exist from the national power supplier - grid) or off-grid (generator or solar or other alternatives).

As per the contract, the service provider /power supplier/ will manage the overall installations, operations, and maintenance of the power supply and the power equipment until the end of the contract (10 years). But, after the contract elapsed, the power supplier will leave all the equipment without any charge.
The monthly payment is fixed with the specified power supply (e.g. 300kw).

Similarly, my company has contracts to access international connection gateways with different vendors with specified GigaBytes.

Therefore, do such contract contains a lease to be treated under IFRS 16 Leases? And criteria or differences with that of tangible in nature having identifiable assets.

Thanks

[Marek Muc]

I'd check if the infrastructure assets are clearly identified and if you're acquiring their full capacity. If these conditions aren't met, it's likely not a lease, see https://ifrscommunity.com/knowledge-bas ... -of-assets

[ngadidala@gmail.com]

If the asset is 'Identifiable' and under the control of lessee, there is lease in the agreement. For example, if there is a cloud service, the lessor generally controls, which hardware, port etc and in such a case it is a mere Service Contract...hope this clarifies.

[Marek Muc]

Not really