You Tell Me, Am I a Lease? Auto Inc. (Auto) is a company based in New York that
ID: 2335028 • Letter: Y
Question
You Tell Me, Am I a Lease? Auto Inc. (Auto) is a company based in New York that manufactures automobiles and exports the finished vehicles to Europe. Auto manufactures two models; the most popular model is a four-door sedan (Sedan), and the other is a less common, highly customizable luxury sports car (Luxury Car). Auto contracts Trans-Atlantic Inc. (Atlantic) to ship its products to Europe. Atlantic has a fleet of 10 multi-use shipping vessels, each with capacity for 2,000 vehicles The terms of the shipping contracts are as follows » Sedan contract terms o The term is five vears MV Manhattan, a ship in Atlantic's fleet, is dedicated to shipping Auto's Sedans for the term of the contract o Auto determines (1) which European ports receive shipments and (2) the order in which deliveries are made to the ports; Auto instructs Atlantic accordingly o Auto has the option to send the ship below capacity. If the ship is below capacity, Atlantic cannot use the excess capacity to ship products of its other customers o Luxury Car contract terms: . o The term is five vears Atlantic is required to deliver shipments of Luxury Cars within five weeks of notification from Auto that an order of Luxury Cars is ready for shipping Atlantic may choose any ship from its fleet to complete the request o o Auto may provide 250 to 2,000 Luxury Cars in a single request; however, shipping requests of Luxury Car generally do not exceed 500 vehicles in a single request because of the lower production volume and longer manufacturing time of Luxury Car o Atlantic has the option to use excess capacity to ship products of its other customers o After notification from Auto that Luxury Cars are ready to ship, Atlantic determines when within the five-week period to ship the cars, as well as the shipping route o Auto's CFO understands that the new leasing standard has certain provisions that may affect how the company treats contracts of this nature Required: Analyze the above and prepare a memorandum addressing the impact (if any) of the new leasing standard on Auto's shipping arrangements for the following considerationsExplanation / Answer
Answer:
The new Leasing standard will require associations that rent resources (residents) to perceive on the accounting report the benefits and liabilities for the rights and commitments made by those leases.
This correction determines the best possible bookkeeping by tenants of leases delegated here and now rents, back leases, or working leases. When all is said in done, a renter ought to perceive a right-of-utilization resource and a rent obligation for each rent.
The terms of the delivery contracts are as per the following:
Vehicle contract terms:
o The term is five years.
o MV Manhattan, a ship in Atlantic's armada, is committed to delivery Auto's Sedans for the term of the agreement.
o Auto decides (1) which European ports get shipments and (2) the request in which conveyances are made to the ports; Auto educates Atlantic appropriately.
o Auto has the alternative to send the ship underneath limit. On the off chance that the ship is beneath limit, Atlantic can't utilize the abundance ability to dispatch results of its different clients.
Luxury Car contract terms:
o The term is five years.
o Atlantic is required to convey shipments of Luxury Cars inside five weeks of warning from Auto that a request of Luxury Cars is prepared for transportation.
o Atlantic may pick any ship from its armada to finish the demand.
o Auto may give 250 to 2,000 Luxury Cars in a solitary demand; be that as it may, shipping solicitations of Luxury Car by and large don't surpass 500 vehicles in a solitary demand on account of the lower creation volume and longer assembling time of Luxury Car.
o Atlantic has the choice to utilize overabundance ability to send results of its different clients.
o After notice from Auto that Luxury Cars are prepared to transport, Atlantic decides when inside the five-week time frame to deliver the autos, and in addition the delivery course.
1. Under the agreement for Sedan, Identifiable resource is MV Manhattan. This ship is dedicated utilized by Atlantic for transportation of Auto's Sedan Cars. According to the terms of the agreement, this ship will be utilized for shipment of Auto's vehicle auto.
Under Luxury auto contract, there is no identifiable resource, as Atlantic is allowed to pick the ship and timing of ship with in the given scope of due date as gave in wording.
2. Under Sedan Contract, Atlantic is working under control of Auto. Indeed, even if there should arise an occurrence of under utilized ability to transport, Atlantic can not send different clients shipment in this ship. All the shipment is observed and controlled via Auto and Atlantic worked under the direction of Auto for Sedan auto shipment. Auto figures out which port in Europe shipment will go. The request in which conveyance is made, all chosen via Auto.
This demonstrates Auto has the privilege to control the utilization of distinguished resource.
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