Reference no: EM132360111
Question
On 1 July 2019, Babo, a bubble tea company enters into a contract with Shopdrop, a shopping mall operator to use a space in the mall to sell its beverages for a five-year period. The contract states the amount of space at the specific store, A14-1, for the first three years. During the first three years period, Shopdrop will substitute the leased space with another available space at the discretion of Shopdrop's management on the 25th of December each year due to a Christmas event. Otherwise, the leased space can only be substituted for repairs and maintenance purposes.
During the last two years of the contract term i.e. the fourth and fifth years, the space may be located at any one of the several open areas within the mall. Shopdrop has the right to change the location of the space allocated to Babo at any time with minimal costs. Babo will use a kiosk, which they own, to sell its goods that can be moved easily.
There are many areas in the mall that are available and which would meet the specifications for the space in the contract. The contract also states that in addition to the monthly rent, Babo would need to pay a 20% cash arising from its sales revenue. Due to the current market trend, Cheezo, a competitor of Babo is considering to offer Shopdrop a 50% increase to the rent that Babo has agreed to pay Shopdrop.
Required:
a) Determine whether or not a lease exists, according to AASB16.
b) Identify the term of the lease (if any), according to AASB16.
c) Explain the difference between a residual value guarantee and a purchase option in calculating lease liability.
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: On 1 July 2019, Babo, a bubble tea company enters into a contract with Shopdrop, a shopping mall operator to use a space in the mall to sell.
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