Arizona Company is a public listed company in Uzbekistan and has two wholly-owned subsidiaries, Supreme Company and
Question:
Arizona Company is a public listed company in Uzbekistan and has two wholly-owned subsidiaries, Supreme Company and SEA Company. The companies have entered the following contracts with different parties:
Supreme Company
Supreme Company (customer), sells T-shirts, entered into a contract with Samarqand
Darvoza shopping mall operator (supplier) in Tashkent - renting a small space selling its Tshirts for three years. The contract indicated that the size of the space and space located could be at any level of the shopping mall.
The shopping mall management has the exclusive right to relocate the space to Supreme on any occasion which deemed fit to the management during the three years contract. The costs associated with and to be incurred by the shopping mall company for the relocation of space for Supreme are minimal. Supreme uses a pushcart to sell its T-shirts and able to move freely and easily from one location to another without any problem. In the shopping mall, there are many spaces available and meet all the specification requirement stipulated in the contract.
SEA Company
SEA Company (customer) entered into a contract with Mercury Company (supplier) to use the lorry for two years to deliver inventory from Tashkent to Samarkand No substitution rights were given to Mercury for the replacement of the lorry as and when it deemed beneficial to Mercury either on monetary terms or in-kind. In the contract, it has indicated and specified the types of inventory which can be transported on the lorry during the contract period. It has also indicated the maximum distance travel and use by the lorry. All the maintenance costs incurred for the lorry during the period of the contract will be settled by SEA.
SEA has the right to decide and design the road travel within the framework of the contract.
SEA does not have the exclusive right to the lorry after the contract is expired. SEA is in control for the driving of the lorry from Tashkent to Samarkand and vice versa. It is also in charge of employing the lorry driver and responsible for all the related cost incurred for employing the drive.
a. Appraise the contract of Supreme Company which entered with the third parties under IFRS 16 - Leases.
b. Appraise the contract of SEA Company which entered with the third parties under IFRS 16 - Leases.
Advanced Financial Accounting
ISBN: 978-0132928939
7th edition
Authors: Thomas H. Beechy, V. Umashanker Trivedi, Kenneth E. MacAulay