Case 1

A telecommunications operator (BarleyCo) enters into an indefeasible rights of use (IRU) contract
with TomCo (the incumbent telecommunications operator) for a dark fibre route between two cities.
The agreement is for a term of 20 years, which is the expected service life of the cable.

The arrangement specifies exclusive use of a distinct fibre within the TomCo fibre cable, and BarleyCo
is responsible for the installation of transmission equipment in TomCo’s buildings in order to light the
fibre. TomCo has the right to swap BarleyCo over to an alternative fibre, but only for reasons of
repair, maintenance or malfunction, in which case it must compensate BarleyCo for financial loss. In
addition to a single up-front payment, the contract provides for TomCo to charge BarleyCo for a share
of maintenance costs and for space, power and cooling within the TomCo buildings.

BarleyCo is responsible for the installation and maintenance of its transmission equipment and is free
to upgrade that equipment during the life of the contract. There are no restrictions on how BarleyCo
may use or resell its capacity.

Analyze whether the arrangement contain a lease.

Case 2

On January 1, 2020, Tom Co (A seller-lessee) sells a building to MacCo (an unrelated buyerlessor) for
cash of CU2,000,000. The fair value of the building at that time is CU1,800,000; the carrying amount
immediately before the transaction is CU1,000,000. At the same time, TomCo enters into a contract
with MacCo for the right to use the building for 18 years, with annual payments of CU120,000 payable
at the end of each year. The interest rate implicit in the lease is 4.5%, which results in a present value
of the annual payments of CU1,459,200. The transfer of the asset to MacCo has been assessed as
meeting the definition of a sale under PSAK 72.

Discuss the implication of the transactions and state the journal entries on January 1, 2020