Question

Which of the following is not required in order for a contract to contain a lease?

a. The asset must be explicitly identified in the contract.
b. The customer con derive substantially all of the potential economic benefits from using the asset
c. The customer can direct the use of the asset throughout the contract term.
d. The provider cannot have the right to substitute alternative assets during the period of use and could benefit economically from s

Answer 1

Option d is the correct answer because a lease contract can allow for asset substitution by the provider without invalidating the lease, provided the economic benefits and control by the customer remain intact.

Step-by-step explanation:

The correct answer is d. The provider cannot have the right to substitute alternative assets during the period of use and could benefit economically from such substitution. Not all contracts requiring an identified asset, substantial benefits, and customer control also restrict the provider from substituting the asset. A lease contract does not specifically require that a provider be unable to substitute alternative assets. In fact, many leases account for situations where substitutions may be necessary, provided that the substitution does not significantly alter the lessee's ability to obtain the economic benefits from the use of the asset or affect their control of it.

To constitute a lease according to contract law, the terms and conditions of property use are established between the lessee and lessor. An explicitly identified asset in the contract is necessary, which means that the specific asset is clearly specified. The lessee should derive economic benefits and have the ability to direct use of the asset during the lease term. bHowever, a lessor maintaining rights to substitute the asset does not invalidate the existence of a lease, provided the economic benefits and control conditions are preserved.