Leasing
Name
Institution Affiliation
- Do you agree with American’s Conclusion that the lease term for the cargo vessel is one year because the revenue contract is for one year?
It is true that the American Conclusion about the lease term for cargo vessel is annual since revenue contract occurs annually. Marseille has leased cargo for shipping the products of American on a specific route. The Conclusion reached it can be termed as correct. Summing up, the experience might have put into consideration that the revenue contract with America will be ended, and the cargo will be irrelevant.
Marseille, however, should be smart enough to capture more new customers on a similar route to maximize the business. Marseille should bear in mind that shipping is traffic, and in cases where a new customer comes in for the new way, it results in its identity hence drawing more customers to the same route. An increase in customers in the course results in more growth in its revenue.
The revenue collected by Marseille is a measure of the cash flows. The lease for the cargo vessel is that the business notices income as cash that shows the consideration which the company expects in exchange for shipping the cargo for America. The lease contract runs for one year. Marseille needs to check the performance of each route to increase the revenue and improve the entity by knowing the transaction cost of each course. The transaction costs are should, therefore, be placed to the performance duties in the one year’s lease term. We can, therefore, agree that the revenue contract is annual, just like the lease term for the cargo vessel. Revenue fulfils the obligations of the business, and consequently, they have to be consistent in the route (Kuklin, 1987).
- What factors should American consider in supporting its Conclusion related to the lease term?
The main reason is that Marseille has one client on that route. Marseille supports the Conclusion due to several factors. They should put into consideration that if the Conclusion doesn’t finish the lease term annually, then more expenses will be incurred, and no revenue will be earned. If the business fails to attract more new customers from the same route, then the cargo will be irrelevant.
America has in mind that Marseille can end the revenue contract annually, therefore not putting thoughtful attention to the starting time of the lease. It is not sure if Marseille will renew the contract after one year, even though they can ship the products for a longer duration exceeding one year, replacing the agreement on the same arrangements for up to four years.
Therefore, America’s support for the conclusions linked to the lease terms should put into consideration the IFRS leases. The lease determines the alignments are correct by the balance sheets of the clients. In most cases, the check is evident, including a transaction resulting in a lease by the new standard. America should put into consideration factors like ensuring the assessment is complete even though it might turn out to be challenging, including the Conclusion based on what the arrangement is founded. The lease may, however, change. This impacts all the transactions such as the trade agreements, IT deploying agreements and shipping agreements. The focus should, however, be on the customers. Another focus is putting into consideration the new standards according to 2019. Even though it offers cost relief, it might result in exceeding lease resulting in contracts that are not based in IFRS 16. America should, therefore, not down look at the shipping task ahead. The effort is required when coming up with the lease agreements, including all the lease information required (Adams, Booth, & MacGregor, 2003).
- Should Americans reassess the lease term of the cargo vessel? If so, why?
Marseille should reassess the lease term. This is because; when such cases occur, the business reassesses the lease term of the cargo to America. In that case, the company needs to have an additional customer for a similar route. This brings out the possibilities of the organization incurring expenses where they could have gotten more revenue.
The commencing of a lease by America of the cargo vessel is essential in case of any extension or calling off of a contract. When a business is needed to reassess a rental, it does this bases on facts and causes regarding the date of the reassessment, which is essential. For instance, the excellent value of the real economic life of the shipping products of the year results in an alteration in the lease term regarding the purchase of the product or the day of the modification.
According to ASC 842, both America and Marseille are required to choose the classification of the lease at the beginning of the contract. On the day the tenancy commences, it is the day when America provides the cargo vessels to Marseille for the shipping business. The entity, however, determines to divide the product separately, which is determined by the multiple components. America is needed to be determined whether Marseille is finance or operational lease, and as we know, it is a finance lease, and Marseille is a direct financial lease (Curtis, 2010).
America’s reassessment of the cargo vessel lease is vital in case the contract goes through some modification. Such modifications are, however, not termed as separate terms of the agreement. America’s reassessment on the starting date is essential to Marseille in case an alteration on the lease term occurs or on the assessment, and there is a reasonable trade option required.
References
Kuklin, B. (1987). On the knowing inclusion of unenforceable contract and lease terms. U. Cin. L. rev., 56, 845.
Adams, A. T., Booth, P. M., & MacGregor, B. D. (2003). Lease terms, option pricing and the financial characteristics of the property. British Actuarial Journal, 9(3), 619-635.
Curtis, U. (2010). Accounting for leases proposed changes will affect most companies. Accountancy Ireland, 42(6), 24.